April 10 – Stocks are sharply lower at mid-day, with this morning’s CPI reading sending the market tumbling as the doves lose hope, while the VIX rises to 15.9 on the increased uncertainty. The dollar is surging following the news, pushing above 104.9 for the first time in roughly five months. Treasuries are also pushing to five-month highs, with 10-year yields surging to 4.5% and 2-year yields pushing above 4.92%. Crude oil showed strength this morning but is now solidly in the red following today’s unexpectedly bearish DOE report, outlined in more detail below, with the nearby WTI contract back below $85 and nearby Brent hovering around $89. The ags are largely mixed on the day, with a wide range of price action highlighted by KC wheat pushing sharply higher while the soy complex falls.
U.S. crude oil stocks grew by a surprisingly large 5.841 Mb for the week ending 4/5, well above market expectations and marking the ninth build seen in the last ten weeks, sending WTI crude prices downward. A big part of this was a huge drop in exports, leading to overall lower demand. Imports also fell to their lowest since mid-March, with a record low level coming from Mexico following their production issues and warnings of impending export cuts. Gasoline stocks also saw a build of 0.72 Mb on an uptick in imports and drop in demand, reversing course from last week’s major draw. Similar to gasoline, distillate stocks also saw an unexpected build of 1.66 Mb with demand falling from the week prior.
Today’s hotter than expected inflation reading has dashed hopes for an upcoming rate cut, with Fed funds futures now showing expectations for the first rate cut not coming until September, a considerable drop after yesterday’s odds had expectations of a June cut at over 50%. The minutes from the March FOMC meeting will be released later this afternoon, giving the market more insight into the opinions of individual Fed members as the doves look for any perceived positive takeaways they can find. The throughline we’ve heard from all FOMC members since their last meeting has been the Fed’s need to avoid pivoting too soon and risking re-inflation. Atlanta Fed President Raphael Bostic said in an interview yesterday that he expects only one rate cut in 2024 but could also see two cuts or even no cuts this year, depending on the data. Headline and core CPI readings both coming in above expectations while the broader economy remains strong gives the Fed no incentive to change from that line of thinking. The market will get more data tomorrow, with jobless claims and March PPI on tap, but it would take a major shock to reverse the hawkish tone that today’s CPI has set, and the market is reacting accordingly.
We’ll also see China’s CPI and PPI data tomorrow, giving the market even more information to digest. News out of China today has been mixed, with auto production and sales data looking quite strong, but concerns still present over China’s struggling property sector as S&P today downgraded the credit rating of Vanke, China’s second-largest property developer by sales, to junk. Additionally, Chinese President Xi Jinping made headlines following his meeting with former Taiwan President Ma Ying-jeou by saying “external interference cannot stop the historical trend of reunion of the country and family,” stoking fears of a future conflict. Relations between the U.S. and China have been improving of recent, with the country’s presidents holding a call last week and Treasury Secretary Janet Yellen’s trip to China appearing to buy some goodwill despite not making any major breakthroughs. In today’s environment of heightened global geopolitical tensions, markets will continue to keep a close eye on developments between the world’s two largest economies.
