Wednesday's Markets Update (April 10, 2024)

10 Apr 2024 by rate3

On Wednesday, stocks plunged as inflation worries flared in a major upset to tech bulls, dimming hopes of Fed rate cuts. The Fed funds rate is now seen staying high in June (76.8% vs 42.6% yesterday) and July cuts are less likely. All sectors fell, with tech giants like Apple and Microsoft leading the decline. Globally, the race in commodities continued with copper prices reaching a one-year high. BTC and ETH reacted to the hot CPI print by dipping down ~2% but then recovering. However, the rest of the crypto market remained in the red, with Polkadot, Algorand, and Polygon slashing 3%, while Bitcoin Cash corrected down by almost 10%.

Details

Inflation jumped to a 7-month high of 3.5% in March, exceeding forecasts. Energy costs rose, especially gasoline, but some utilities and fuel oil eased. Food inflation held steady, but shelter, transportation and apparel prices jumped. The monthly CPI increase (0.4%) matched February's but missed expectations. Core inflation remained unchanged at 3.8% (both monthly and annually). (BLS)
30-year fixed mortgage rates jumped to a 5-week high (7.01%) in the week ending April 5th. Fed officials signaling a cautious approach to rate cuts, strong jobs data, and persistent inflation are blamed for the rise. Rates for jumbo loans and FHA loans also increased. (MBA)

World Markets

Fitch Ratings downgraded China's credit outlook to negative (from stable) citing concerns about its finances. China's debt is rising as it moves away from a real estate-focused economy. Other major rating agencies have China at A+ (S&P) or A1 (Moody's) with mixed outlooks.
Brazilian inflation continued to cool, hitting a 9-month low of 3.93% in March. This drop below the central bank's target (4.5%) paves the way for further interest rate cuts. Transportation costs led the decline, with falling fuel prices. Food prices rose slightly. The monthly inflation rate was also minimal, the smallest in 8 months. (IBGE)

Currencies

Stronger-than-expected inflation data (3.5% YoY) sent the dollar soaring (up 0.7%). This suggests the Fed will hold off on rate cuts. The data, including steady core inflation and a higher monthly CPI, follows a strong jobs report. The market now expects less rate easing from the Fed (50 bps vs 60 bps) with no cuts until September.
The Euro tumbled below $1.08. Investors flocked to the dollar as expectations of a Fed rate cut faded. In Europe, markets awaited the ECB's policy meeting. Though rates are expected to hold steady.
The Japanese yen reached a 32-year low (152.7 yen per dollar). Hot inflation data is fueling expectations that the US Fed will maintain high interest rates, widening the gap with Japan's near-zero rates. This is a boon for carry traders borrowing cheap yen to buy higher-yielding dollars. Japan's central bank is watching closely, hinting at intervention if the yen weakens excessively.

Commodities

Copper prices soared to a 15-month high (over $4.30/lb) due to supply worries and rising demand. Chinese smelters are planning output cuts, adding to supply woes caused by mine disruptions in Africa and South America. This coincides with signs of a manufacturing rebound in the US and China, boosting demand for copper.