PPI The New Focus – US Market Wrap

– Wall Street traders overlooked mixed economic data, driving stocks and bonds higher ahead of an inflation measurement that will help determine the Federal Reserve’s next steps.
– The S&P 500 hit another all-time high, despite losses in its most influential group: technology. A drop in retail sales helped calm investors’ nerves about overheated consumer demand, especially after all the jitters caused by a strong inflation print earlier this week. Bond yields fell, with Fed swaps fully pricing a June interest rate cut.
– For months, investors have been dealing with conflicting economic narratives: progress towards lower inflation has shaped the view that the Fed can cut interest rates from multiyear highs to avoid pushing the US into a recession, while the economy has outperformed expectations, giving the central bank room to delay.
– The S&P 500 rose to around 5,030, led by gains in banks and energy companies. Tesla Inc. climbed over 6%, Nvidia Corp. fell from a record, and Alphabet Inc. fell on reports that ChatGPT owner OpenAI is developing a web search product to compete with Google. Treasury 10-year yields fell two basis points to 4.24%.
– Both retail sales and manufacturing production indicated a lack of momentum, but this did not necessarily indicate a severe worsening in the economy. The statistics also showed that homebuilders’ sentiment reached a six-month high, while unemployment claims fell.
– A hotter-than-expected consumer price index earlier this week roiled financial markets, with traders resetting their bets on Fed rate-cuts in 2024.
– Next up will be the producer price index – which wouldn’t normally get as much attention from markets as the CPI – but will be highly scrutinized this time around.
– Signs that inflation anxiety remains potent included strong demand for Treasury options strategies targeting 10-year yields to exceed 4.4% in the coming weeks, a level last seen in November.