Recent economic data has sent shockwaves through the financial markets, particularly impacting U.S. stocksAs the trading day began on February 12, the three major indices in the United States—Dow Jones Industrial Average, S&P 500, and Nasdaq—saw significant declinesReports indicate a drop of 0.88% for the Dow, 1.02% for the S&P 500, and 1.11% for the Nasdaq, creating an atmosphere of caution among investors.
The tech sector, known for its volatility and quick market reactions, faced widespread declinesProminently, NVIDIA shares fell nearly 2%, while other big tech firms such as Microsoft, Amazon, Alphabet (Google's parent company), and Broadcom each suffered declines exceeding 1%. However, Tesla bucked the trend slightly by rising close to 1% amidst these broader market downturns.
In examining the economic backdrop, the Consumer Price Index (CPI) for January, released by the U.SBureau of Labor Statistics (BLS), revealed a year-over-year increase of 3%. This growth surpassed the anticipated 2.9% rise and matched the previous month's figureOn a month-over-month basis, the CPI noted a 0.5% increase, again exceeding expectations of 0.3%. Furthermore, the core CPI, which excludes volatile items like food and energy, grew 3.3% year-over-year, higher than the expected 3.1% and above December's 3.2% figureThe month-over-month core CPI also grew by 0.4%, exceeding the 0.3% forecast and last month’s 0.2%.
One of the ongoing concerns contributing to inflationary pressure is the increasing cost of housingThe BLS reported a 0.4% rise in housing costs, responsible for approximately 30% of the CPI's overall increasePrices across key food categories, particularly for meat, poultry, fish, and eggs, also saw significant spikes, with egg prices rising by a staggering 15.2%. This marked the highest increase in egg prices since June 2015 and accounted for roughly two-thirds of the overall monthly grocery price hikes families are experiencing.
Interestingly, the BLS has recently updated its seasonal adjustment factors and weighting schema, which authorities employ to filter out seasonal variations in order to provide a clearer picture of price changes
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January's CPI increase could partly be attributed to businesses pushing prices higher at the year's start; businesses often anticipate increased tariffs on imported goods, leading them to adjust prices proactively.
In light of these inflation figures, traders are recalibrating expectations around Federal Reserve policyThe consensus suggests a shift towards reduced accommodative measures, pushing back anticipated rate cuts from September to DecemberInterest rate futures now predict a minimal reduction of just 26 basis points by December, compared to the prior expectation exceeding 37 basis points, indicating only a singular 25 basis point cut expected this year.
The market reactions were palpable; spot gold witnessed minor fluctuations, initially dipping before rebounding close to previous highs, while silver experienced a notable rally, climbing nearly 1%. Currency trading showed a general downward trend for non-U.S. currencies, with the Euro and British Pound both dipping sharply against the dollar.
Whitney Watson, a Goldman Sachs analyst, emphasized the significance of the newly released inflation data, suggesting it could bolster the Federal Reserve's already cautious approach to monetary policyAdditionally, the robust labor market contributes to the Fed's capacity to maintain its stance for the time being, with expectations set to keep rates unchanged in the upcoming committee meetings.
On a similar note, Michael Brown from Pepperstone articulated that the likelihood of rate cuts in the first half of 2025 appears slimHe remarked that the January CPI figure would certainly pose a challenge for the Federal Open Market Committee, although any spikes might be attributed to temporary conditions, such as the typical price surges seen early in the yearGiven these trends, the potential for prolonged pauses in the easing cycle seems to be growing.
Just a day prior, Fed Chair Jerome Powell reiterated the possibility of pausing interest rate adjustments
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In a separate yet related market reaction, the Nasdaq China Index showed strong performance early in the session, surging approximately 1.5%. Several prominent Chinese stocks rallied, with shares in Fangdd Networking Group seeing an impressive increase of over 25%. Other notable stocks like Beike, NetEase Youdao, and Alibaba also noted gains.
In the A-share market, real estate stocks surged towards the end of the trading sessionStocks like Tebon Services rose by over 10%, while Vanke and Wolong Real Estate hit the daily limitIn the Hong Kong market, Sunac China and Xincheng Holdings surged by nearly 21% and 20% respectively, as sentiment increasingly shifts toward recovery within the property sector.
With recent provincial political meetings concluded, local governments have signaled their intent to focus on stabilizing real estate markets and implementing new development strategiesThis anticipated reformation within the sector has led to notable activity across land markets, with many regions observing heightened interest from property developers post the Spring Festival holiday.
A recent report from the China Index Academy noted that activity in property transactions has shown marked vibrancy across major first-tier cities like Beijing, Shanghai, and ShenzhenJanuary saw significant growth in land transaction values for residential and commercial properties, with top 100 players spending a total of CNY 121.07 billion—a year-over-year increment of 41.4%. This activity reflects a positive turnaround from the prior year’s performance.
According to Galaxy Securities, insights shared during the provincial meetings point to concerted efforts in addressing market issues, such as demand, inventory, and supply within the real estate landscapeSuch holistic approaches may gradually start yielding results, potentially lifting property valuations as leading firms continue to display strong operational management capabilities that could enhance market share.
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