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Market turbulence: Inflation data triggers Dow dip and bond yield surge

March 15, 2024

The Dow Jones Industrial Average ended its three-day winning streak with a decline on Thursday, driven by unexpectedly high U.S. inflation data that also saw Treasury yields climbing. The producer price index for February indicated a higher-than-anticipated rise in wholesale inflation, causing a stir in the stock and bond markets. Major technology stocks like Apple and Microsoft remained in favor, while Nvidia and electric vehicle startup Fisker faced setbacks. The inflation report, critical to the Federal Reserve’s upcoming policy decisions, influenced the bond and currency markets, setting a cautious tone ahead of the Fed’s next meeting. Investors and analysts are now recalibrating their expectations for interest rates and market direction, highlighting the ongoing challenges in predicting economic trends amidst fluctuating inflation rates.

Stock Market Updates

The Dow Jones Industrial Average experienced a downturn on Thursday, ending a three-day winning streak as unexpectedly high U.S. inflation data prompted a rise in Treasury yields, placing additional pressure on shares of Nvidia. The Dow dropped by 137.66 points, a 0.35% decrease, settling at 38,905.66. Similarly, the Nasdaq Composite and the S&P 500 saw declines, falling 0.3% and 0.29% to close at 16,128.53 and 5,150.48, respectively. This downturn came in the wake of the February producer price index (PPI) report, which indicated a 0.6% increase in wholesale inflation, exceeding economist predictions.

The rise in the producer price index, particularly with a 0.6% leap last month and a core PPI (excluding food and energy prices) increase of 0.3%, surpassed Dow Jones economists’ expectations. These economists had anticipated a more modest 0.3% gain for the headline PPI and a 0.2% increase for the core measure. Initially, the stock market showed resilience in response to the report but began to falter shortly after the trading day began, reflecting investors’ concerns about the implications of persistently high inflation on future Federal Reserve rate decisions and the potential impact on the stock market rally’s momentum.

The inflation report’s aftermath saw bond yields on the rise, with the benchmark 10-year Treasury yield climbing approximately 10 basis points to 4.29%. Nvidia’s shares were notably impacted, marking a decline for the fourth time in five sessions, with a pullback of over 3%. Market strategists and investors are now grappling with questions about the direction of yields and the market’s trajectory, with expectations of further downside if yields continue to ascend.

On the technology front, major stocks like Apple and Microsoft drew investor interest despite the overall market downturn. Robinhood’s shares surged by 5% following a report of a 16% increase in assets under custody compared to the previous month. In contrast, the electric vehicle sector witnessed Fisker’s shares plummeting nearly 52% amid reports of potential bankruptcy preparations, showcasing the varied investor responses across different sectors.

Currency Market Updates

Currency and commodity markets also reacted to the inflation and employment data, influencing expectations for the Federal Reserve’s upcoming policy meeting. The dollar strengthened against major currencies, and oil prices surged, adding to inflationary pressures. Investors and analysts are now closely watching the Federal Reserve’s next moves, with the upcoming policy meeting poised to provide further direction amidst ongoing economic uncertainties.

Picks of the Day Analysis
EUR/USD (4 Hours)

EUR/USD weakens amid strong US dollar and anticipated central bank easing

The EUR/USD pair exhibited increased weakness, reaching weekly lows below 1.0900, driven by a resurgence in the US Dollar’s strength amid positive US economic data and rising US yields. This development comes as both the US and European economies prepare for anticipated easing cycles by the Federal Reserve and the European Central Bank, potentially starting in June. Despite similar timelines for rate cuts, the differing economic fundamentals between the eurozone and the US, particularly the robust US economy and its tighter labor market, hint at a medium-term advantage for the Dollar. Consequently, EUR/USD faces the prospect of further corrections, possibly testing significant lows not seen since late 2023.

Chart EUR/USD by TradingView

On Thursday, the EUR/USD moved lower and reached the lower band of the Bollinger Bands. Currently, the price is moving just around the lower band, suggesting a potential higher movement, and may reach the middle band. Notably, the Relative Strength Index (RSI) maintains its position at 31, signaling a bearish outlook for this currency pair.

Resistance: 1.0917, 1.0984

Support: 1.0859, 1.0812

 Economic Data
CurrencyDataTime (GMT + 8)Forecast
USDEmpire State Manufacturing Index20:30-7.0
USDPrelim UoM Consumer Sentiment22:0077.1