Brothers and sisters, one bad news and one good news. The bad news is that there has been a bearish trend in the United States, while the good news is that our A-share market will only open next week and will not be affected temporarily.
Sudden bearish news and a sharp drop in US stocks
On the evening of February 13th Beijing time, the United States released the latest economic data - the Consumer Price Index (a key indicator of inflation), in which the CPI in January increased by 3.1% year-on-year, with an expected growth of 2.9%; The month on month CPI in January increased by 0.3%, with an expected increase of 0.2%. The core CPI of the United States in January increased by 3.9% year-on-year, with an expected increase of 3.7%; The core CPI in January increased by 0.4% month on month, with an expected increase of 0.3%.
The CPI data for January increased by 3.1% year-on-year, mainly driven by the rise in housing (accounting for two-thirds of the overall increase), food, car insurance, medical insurance prices, outpatient services, and pet services.
The core consumer price index (excluding volatile food and energy) increased by 0.4% month on month, the largest increase in 8 months, and a year-on-year increase of 3.9%.
The CPI data highlights the sustained inflationary pressure, further reducing the likelihood of the Federal Reserve starting to cut interest rates soon, and any further acceleration may reignite discussions about resuming interest rate hikes. Recently, several Federal Reserve officials have publicly expressed their hope to see broader easing of price pressures before interest rate cuts.
After the data was released, the observation tool of the Federal Reserve of ChiNext showed that the probability of a rate cut in March dropped to 6.5%.
After the news came out, major global stock indexes plummeted sharply. After the US stock market opened, the Dow Jones index plummeted by 500 points, and the Nasdaq index fell more than 2% at the beginning of the trading day, but the decline subsequently narrowed significantly.
The decline in European stock markets has widened.
The US dollar index surged.
The FTSE China A50 index also saw a sharp decline.
The swap contract shows that the Federal Reserve will cut interest rates by less than 100 basis points in 2024, and the market has fully digested the possibility of the Fed's rate cut being postponed from June to July, with the possibility of a rate cut in March reduced to almost zero.
London gold and silver spot prices plummeted significantly, with London gold falling below the $2000 mark.
Analysis and Review
Analyst Cameron Crisis suggests that the possibility of a rate cut in March can be more firmly ruled out, and perhaps the possibility of a rate cut in May can also be eliminated. The US CPI data for January exceeded expectations both on an overall and core basis. To make matters worse, the overall figure was not even lower than 3% year-on-year, but 3.1%. Obviously, this is causing the hawks of the Federal Reserve to spread their wings again, while the doves may return to their nest, at least in the short term. No single data may be decisive, but after recent communication from the Federal Reserve and strong employment data, it is clear that there is no urgent need to cut interest rates as soon as possible. If there is, attention to the risk of sustained inflation remains the most important.
Subadra Rajappa, head of US interest rate strategy at Societe Generale, said that the CPI data released today was stronger than expected, with housing costs rising. Considering the strong momentum in other areas such as employment, the Federal Reserve is more likely to push the timeline towards mid year interest rate cuts rather than earlier. There is no urgency for the Federal Reserve to take action, so I believe that as long as employment data continues to be quite good and economic growth surprisingly rises, the US economy will not substantially slow down in the fourth quarter. I believe that strong economic growth, strong employment, and inflation still have some stickiness, and the Federal Reserve may remain patient.
Faced with the epic bearish market performance of the US stock market since the beginning of the year, Nomura analysts previously pointed out that if Nvidia's financial reports explode or US inflation reignites, it is possible to end this round of US stock market gains. The overheating of the US economy has led to a resurgence of inflation, ending the market's expectation of interest rate cuts and potentially causing a significant pullback in US stocks.
Chris Zaccarelli, Chief Investment Officer of Independent Advisor Alliance, stated that high inflation is everyone's biggest concern, and the January inflation report shows that inflation has not decreased. The subconscious reaction of the market is to sell stocks and bonds. We need to wait for the next inflation report. If the next report shows low inflation, it indicates that the rebound in inflation is only a temporary phenomenon. The Federal Reserve's focus is on the core service industry, which excludes housing. Inflation in this industry is on the rise, which also indicates that inflation is more challenging than expected. Interest rates are expected to remain at a relatively high level for a longer period of time, and it is almost impossible to lower rates in March, while there is also a possibility of not lowering rates in May.
According to Russell Price, Chief Economist at Ameriprice Financial, two factors have truly influenced the entire inflation report. One is housing, with the month on month growth rate of housing inflation in January being the fastest since February last year. Another factor is the overall increase in wages, as starting from January 1st, 22 states in the United States have raised minimum wages, which may be passed on to consumers by many businesses. The Federal Reserve has stated that they will take it slowly, and today's data and last week's employment data indicate that they are doing the right thing. The message conveyed by the Federal Reserve is correct, while the message conveyed by the market about the upcoming interest rate cut seems incorrect.