[U.S. Market]Stocks Rebound, PCE Price Index Exceeds Expectations – Dollar Low 136 Yen – Bloomberg

The US stock market fell back on the 24th. The January Personal Consumption Expenditure (PCE) price index released in the morning showed better-than-expected gains. That reinforced the view that the Fed still has a long way to go before it raises interest rates aggressively and that the economy is unlikely to achieve a soft landing.

US PCE price index outperforms expectations, increasing pressure to continue rate hikes (3)

stock	closing price	Compared to the previous business day	Rate of change
S&P 500 Stock Index	3970.04	-42.28	-1.05%
Dow Jones Industrial Average	32816.92	-336.99	-1.02%
NASDAQ Composite Index	11394.94	-195.46	-1.69%

After a long period of low volatility in the stock market, volatility is now rising again. This is partly due to economic uncertainties, but it also reflects the fact that the market price has risen sharply since its low in October last year and has become overvalued. The gains have been eroded by the day as fears spread that the economy could slip into a recession, further hurting corporate earnings prospects.

The S&P 500 stock index suffered its biggest weekly drop this year. The tech-heavy Nasdaq 100 fell 1.7% on the day as U.S. Treasury yields rose. The interest rate swap market is 100% pricing in rate hikes of 0.25 percentage points each at the next three Federal Open Market Committee (FOMC) meetings. In addition, the policy interest rate peak was raised to about 5.4% by July, higher than the previous forecast.

“Given the current inflation data, current valuations following the January rally, and a weak Q4 earnings season, there is no upside for stocks at this point,” said Brian Overby, senior market strategist at Ally. Almost none,” he said. “The ‘no-landing’ outlook is rapidly turning into a ‘bumpy landing’ outlook as the realization that higher policy rates will last longer is starting to take hold,” he said.

“This data was not what the FOMC and investors expected,” said Greg Wilenski, head of U.S. fixed income at Janus Henderson & Co. Better-than-expected inflation data, combined with continued strength in the labor market and consumer spending, will push the FOMC forward “It suggests there is still work to be done and we may have to wait a little longer before the pause in rate hikes that the market has been waiting for.”

Cleveland Fed’sMester said the better-than-expected growth in the PCE price index signaled the need to continue raising rates. However, at the FOMC meeting in March, it did not go so far as to justify a 0.5 percentage point hike. The PCE price index data are “consistent with the fact that the FOMC needs to do a little more on its policy rate to ensure a lower inflation rate,” he said.

“We need to act now to restore confidence,” St. Louis Fed President James Bullard said on a separate occasion.

The U.S. policy rate may need to be raised to 6.5%, five economists including Brandeis University professor Steven Cecchetti and JPMorgan Chase & Co. chief U.S. economist Michael Feroli said. He criticized the FOMC for its initial delay in responding to rising inflation. The paper argues that the Fed’s outlook remains too optimistic and that some economic pain will be necessary to keep prices under control.

Academic and financial economists point out the need to raise US interest rates to a maximum of 6.5%

Economist Mohamed El-Erian said financial markets were starting to doubt whether the FOMC could bring inflation down to its target.

US Treasuries

U.S. Treasuries fell sharply and yields rose. Yields on two-year bonds hit their highest level since 2007. The PCE price index grew faster than expected. The interest rate swap market has fully priced in 0.25 percentage points of rate hikes at each of the next three FOMC meetings, and has cut the odds of a rate cut by the end of the year to 50/50.

government bonds	Latest price	YoY change (bp)	Rate of change
US 30-year bond yield	3.92%	3.6	0.92%
US 10-Year Treasury Yield	3.94%	6.6	1.71%
US 2-Year Treasury Yield	4.81%	11.6	2.47%
		US Eastern Time	16:52

foreign exchange

The dollar rises in the foreign exchange market. US inflation data and hawkish remarks by Fed officials boosted expectations for US interest rate hikes. New sanctions against Russia and US-China tensions also supported the dollar. The dollar index posted its biggest weekly gain since September last year. The yen fell against the dollar, falling for six consecutive weeks.

The yen fell 1.4% against the dollar at one point to 136.52 yen to the dollar, hitting a two-month low. 1.7% lower for the week. It was down 2.1% last week.

Kazuo Ueda, an economist who was nominated as a candidate to succeed Haruhiko Kuroda, the governor of the Bank of Japan, said that if the underlying price outlook improves, it will be necessary to normalize the yield curve control (YCC) policy. expressed the view that it would be He also pointed out that it would be appropriate to continue monetary easing at this point. He said at a hearing and question-and-answer session before the House Operations Committee.

“There has been no clear hawkish signal to reignite speculative demand for the yen in the near future,” said Lee Hardman, a currency strategist at MUFG Bank, in a note. He said, “It is expected that major central banks in the United States and other regions will be forced to raise interest rates further in order to calm inflation. I wrote.

money order	Latest price	Compared to the previous business day	Rate of change
Bloomberg Dollar Index	1257.14	8.40	0.67%
dollar/yen	¥136.48	¥1.78	1.32%
euro/dollar	$1.0544	-$0.52	-0.49%
		US Eastern Time	16:52

crude

The New York crude oil futures market continued to rise. However, it closed at about the same level as the previous weekend. Bearish trends, such as rising inventories in the US and a disappointing recovery in demand, weighed on stocks.

Markets are already oversupplied, and U.S. oil inventories have increased by nearly 24 million barrels in the past two weeks.

Diesel prices have also fallen to pre-war levels in Ukraine, said Dennis Kistler, senior vice president of trading at BOK Financial Securities. mentioned. He added that he “many traders also believe inflation is starting to slow U.S. fuel demand.”

West Texas Intermediate (WTI) futures for April delivery on the New York Mercantile Exchange (NYMEX) closed at $76.32 a barrel, up 93 cents (1.2%) from the previous day. London ICE North Sea Brent for April delivery rose 95 cents to $83.16.

Money

The New York gold market continues to fall. Selling became dominant as the US Personal Consumption Expenditures (PCE) data showed a new surge in inflation and increased speculation that interest rates would continue to rise. Gold fell for the second consecutive week on a weekly basis.