4:10pm: Sentiment sours
Tuesday’s hot inflation reading saw all three major US stock indexes finish the trading session in the red.
The Nasdaq shed 1.8% at 15,665 points and the Dow Jones was down 1.4% at 38,272 points. The S&P 500 fell back below 5,000, down 1.4% at 4,953 points.
12:10pm: Stocks take a big hit
The Dow Jones is trading at its lowest levels so far in 2024 on the heels of the surprisingly hot inflation data released earlier this morning.
At noon, the Dow had lost 464 points to sit at 38,336 points for a 1.2% loss on the day. The Nasdaq, meanwhile, was down 1.5% at 15,704 and the S&P 500 had slipped under the 5,000 threshold to rest at 4,961, a 1.2% decline.
The high inflation print means the likelihood of an interest rate cut in March has diminished significantly. Market pricing indicates a 39% chance, down from 67% a week ago, according to the CME FedWatch Tool.
Core services inflation may persist due to a tight labor market, according to analysts, but some are hopeful that rate cuts may still come in June.
Additionally, market data compiled by Bloomberg reveals expectations for approximately four rate cuts throughout 2024.
The higher-than-expected US CPI print provoked a sell-off in global equities as rate cut expectations are pushed back, said Axel Rudolph, Senior Market Analyst at online trading platform IG.
"January consumer price inflation falling less than expected was enough of a catalyst to cut the equity rally short, push yields and the US dollar to two-month highs. Hopes for a Fed March rate cut have all but disappeared with the market now pricing in a 53% probability of a first cut being seen in June."
This adjustment in rate cut expectations has influenced market activity, particularly impacting interest rate-sensitive sectors like small caps and real estate, which experienced sell-offs on Tuesday.
10:10am: S&P 500 opens below 5,000 as markets hit by higher-than-anticipated inflation in January
America’s stock markets felt the brunt of a higher-than-expected inflation reading on Tuesday.
At 3.1%, January’s inflation came in jigger than analysts' forecasts of 2.9%, effectively ruling out hopes of base rate cuts over the first half of the year.
The Nasdaq fell 1.7% to 15,659 on the news, while the S&P 500 and Dow Jones moved 1.3% and 1.1% lower to 4,956 and 38,370.
“Traders now expect around four interest rate cuts in 2024,” Evelyn Partners strategist Rob Clarry commented, “which is down from the six expected just over a month ago”.
“Similarly, they have pushed back their expectations of when the first cut will take place.”
Among equities, Coca-Cola’s report of fourth-quarter earnings in line with expectations saw the stock climb.
Burger King owner Restaurant Brands International (TSX:QSR, NYSE:QSR) faced a decline in its share price though, despite reporting better than expected revenue.
Shopify slipped after reporting fourth-quarter results too, with Airbnb earnings also expected.
9:00am: Rate cut hopes hit by US January inflation figure - analyst
Hopes that the US Federal Reserve could begin a series of base rate cuts from May have been heavily dampened on news inflation outdid expectations in January, analysts say.
“Odds have reduced further [of a May rate cut] following publication of today’s data,” Titan Asset Management chief investor John Leiper said.
“A plethora of recent economic data, including leading indicators for wages, highlight ongoing inflationary pressures,” he added, “we saw signs of that in today’s numbers”.
January’s consumer price index reading came in at 3.1%, lower than December’s consumer price index reading of 3.4%, but higher than analysts’ expectations of 2.9%.
Omnis Investments chief strategist explained that the path was also going to be “bumpy” meanwhile, but said moderating wage growth should start to show in future month’s figures.
“The Fed is keen not to make a mistake and wants confirmation of this before committing to a reduction in interest rates,” he commented.
“However, this eagerness may itself prove to be a mistake, if interest rates are held too high for too long.”
US stock market futures faced a blow on the news, with the Nasdaq being called down 1.6%, alongside the S&P 500 and Dow Jones by 1.2% and 0.9%.
7:00am: Stocks called lower ahead of inflation data
US stock markets are expected to fall on Tuesday’s opening bell as investors eagerly await inflation data for January.
The Nasdaq is being called 0.7% lower at 17,851 based on futures trading ahead of the data’s release, which is expected at 8.30am ET.
S&P 500 and Dow Jones futures have the indexes down 0.4% and 0.1% respectively meanwhile, at 5,022 and 38,830.
“A potentially stronger inflation report could further bolster the dollar's position against currencies with lower yields,” City Index analyst Fawad Razaqzadal commented ahead of the figures.
“A softer reading would be welcomed by traders favouring foreign currencies over the US dollar.”
Analysts are expecting the consumer price index figure to sit at 2.9% for January, against a reading of 3.4% in December.
Elsewhere in the US, Coca-Cola, Airbnb and Shopify are among big companies set to report on Tuesday.