Stocks Fall With Bonds as CPI Curbs Fed-Pivot Bets: Markets Wrap

Equities were set to extend their April losses, with S&P 500 contracts falling over 1% after the consumer price index underscored the bumpy path policymakers face in bringing inflation back to the 2% target. Treasury 10-year yields approached 4.5% — hitting a fresh high for 2024. Fed swaps priced in only 50 basis points of easing in 2024 — which equates to two rate cuts. The dollar climbed against all of its developed world counterparts.

A measure of underlying US inflation topped forecasts in March for a third month. The so-called core consumer price index, which excludes food and energy costs, increased 0.4% from February. From a year ago, it advanced 3.8%, holding steady from the prior month.

Wall Street’s Reaction to CPI Data:

You can kiss a June interest-rate cut goodbye. There is no improvement here, we’re moving in the wrong direction.

In recent months it has become clear that the journey to the Fed’s target of 2% inflation will be bumpy. It’s often said that the Fed takes the escalator up and the elevator down when setting rates, but for the path downwards in this cycle, it looks like they will opt for the stairs.

The US economy is running along at quite a pace and a June rate cut looks less and less likely – July or September is the call now. The Fed has got some head scratching to do and if other central banks were waiting for the Fed to move, they have got a conundrum on their hands now.

The rates market needs to seriously consider the likelihood of higher-for-longer at minimum lasting through the Summer and potentially through the end of the year. This number did not eclipse the Fed’s confidence, it did, however, cast a shadow on it.

This marks the third consecutive strong reading and means that the stalled disinflationary narrative can no longer be called a blip. In fact, even if inflation were to cool next month to a more comfortable reading, there is likely sufficient caution within the Fed now to mean that a July cut may also be a stretch.

Corporate Highlights:

Key events this week:

Some of the main moves in markets:

Stocks

Currencies

Cryptocurrencies

Bonds

Commodities

This story was produced with the assistance of Bloomberg Automation.

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Published: 11 Apr 2024, 02:39 AM IST