U.S. CPI slows sharply, U.S.-Europe stock markets rally

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Daily Fed Stock Trends – Captured from Yahoo Finance

As the consumer price index (CPI) in the United States turned out to have slowed significantly, not only the US but also European stock markets rallied.

On the 14th (local time) in the New York Stock Exchange, the Dow rose 1.05%, the S&P 500 rose 1.67%, and the Nasdaq rose 2.14%.

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◇ US CPI lowest since September 2021
: This is because the CPI announced today met market expectations.

The US Bureau of Labor Statistics reported that the CPI rose 6.0% in February compared to the same month last year. This was in line with market expectations and was lower than the previous month (6.4%). This is also the lowest level since September 2021.

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Excluding highly volatile food and energy prices, the growth rate of the ‘core CPI’ also fell from 5.6% in January to 5.5% in February, the lowest since the end of 2021.

The probability of a Fed rate hike is low
: As a result, the probability that the Fed will raise interest rates aggressively has decreased.

Shortly after the release of these indicators, the futures of the Federal Funds Rate (US base rate) traded on the Chicago Mercantile Exchange (CME) reflected the probability of the Fed raising interest rates by 0.25 percentage points at the March Open Market Committee (FOMC) as 73.8%. did. Freezing is 26.2%.

Previously, Fed Chairman Jerome Powell attended a congressional hearing last week and said, “In the case of some inflation indicators, they have reversed,” and “the Fed is ready to raise interest rates more.”

Since then, there have been many predictions that the Fed will raise interest rates by 0.5 percentage point at the FOMC to be held on March 21-22. However, the prospect of an interest rate hike of 0.5 percentage point has become ‘0’%.

A slowing CPI greatly reduced the likelihood of an aggressive rate hike by the Fed.

In particular, in the face of the Silicon Valley Bank (SVB) bankruptcy and the resulting financial crisis in the United States, these macro indicators are expected to give the Fed room to adjust the pace of interest rate hikes.

The Fed is in a position to cut interest rates to prevent a crunch in the financial market as the financial crisis caused by the SVB is escalating. In this situation, if even inflation exceeds the market’s expectations, the Fed has no choice but to raise interest rates like eating mustard while crying.

However, with inflation slowing significantly, the Fed is expected to be able to avoid a crunch in the financial market by carrying out a less aggressive rate hike.

◇ Bank stocks lead the rally
: By stock, banking stocks soared. Shares of First Republic Bank, which is facing bankruptcy, soared 27.84%. Pac West Bancorp, the same regional bank, soared 33.85% and Zion Bank Corporation 4.47% respectively.

As regional banks performed well, global banks also rose. Global banks also rallied at once, with Citibank rising 5.86% and JP Morgan Chase rising 2.58%. As a result, the S&P 500 financial index closed up 2.20%.

◇ European stock markets all rose more than 1%
: Not only the US stock market but also the European stock market rallied simultaneously. European stock markets all ended more than 1% higher.

Germany’s DAKS surged 1.83%, Britain’s FTSE rose 1.17%, and France’s Kag rose 1.86%. As a result, the pan-European Stoxx 600 rose 1.53%.

As the US CPI turned out to have slowed significantly, the financial index surged 2.5%, leading the rally in European stock markets.

Source: Donga

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