Financial Services Association, May 16 (Editor: Xiaoxiang) As the S&P 500 Index once again reached an all-time high after a month and a half; the Dow closed above 39,900 points for the first time in history, approaching the 40,000 mark. Wall Street seemed completely at ease after the release of the US CPI data for April on Wednesday.

This report, which shows that US inflation is once again cooling down, has further consolidated expectations of the Federal Reserve's interest rate cut in September, and the global market is once again showing a “dollar falls and everything rises.”

Shortly after the three major US stock indexes surged across the board overnight, the Asian market “continued to play and dance” shortly after opening on Thursday. The Nikkei 225 Index recently rose by about 0.6% during the day, while the Korea Composite Stock Index directly shorted more than 1% higher.

Furthermore, the Australian S&P 200 index has now risen by 1.3%.

The consumer price index (CPI), which measures the cost of goods and services in the US economy, rose 3.4% year on year in April, according to data released by the US Department of Labor on Wednesday. Excluding volatile food and energy projects, the so-called core CPI rose 3.6% year over year, the lowest increase since April 2021. Both of these figures are in line with the expectations of economists surveyed by the media.

On a month-on-month basis, the US CPI increased by 0.3% per month in April, slightly lower than the 0.4% forecast and previous value. This is the first time in six months that the month-on-month increase in US CPI has slowed.

This CPI report, which shows a trend of cooling prices from various angles, has undoubtedly made market traders further endorse their optimistic tone of the US stock and bond market in advance. Many macro analysts said that in addition to some downward revisions to previous data, this is a report that really shows the trend of cooling inflation.

Gennadiy Goldberg, head of US interest rate strategy at TD Securities, said, “Market participants are relieved that we have not seen inflation continue to be higher than expected.”

David Russell, director of global market strategy at TradeStation, also said, “Although housing costs have not declined as expected, there have been improvements in transportation and healthcare. That number isn't perfect, but we are gradually moving towards lower inflation. Weak retail sales data and the New York Federal Reserve manufacturing index also indicate that growth is slowing, which preserves the possibility of interest rate cuts. This is triple positive news.”

Other data released on Wednesday showed that retail sales in the US unexpectedly remained flat in April, as spending on other goods declined due to rising gasoline prices, indicating that consumer spending is losing momentum.

The latest data sets mentioned above also further prove that the US “soft data” and “hard data” are currently beginning to decline simultaneously.

The US Economic Surprise Index compiled by Citi has begun to fall into a deep negative zone, in stark contrast to the hot data performance for the first quarter of this year. The index measures the difference between the actual published value of economic data and the market forecast period.

Following the release of CPI and retail sales data, federal funds rate futures traders now expect the Fed to cut interest rates by 51 basis points this year (two interest rate cuts are fully priced). The forecast for Tuesday is 45 basis points; traders also expect the Fed to cut interest rates at least three more times in 2025.

Furthermore, according to the CME Federal Reserve's observation tool, the probability that traders would predict that the Federal Reserve will cut interest rates for the first time in September also rose by 70% overnight...

The dollar falls and everything rises

Judging from the performance of the US market on Wednesday, expectations of the Federal Reserve's interest rate cut picked up further, and unsurprisingly, the market showed a “dollar falling and everything rising.”

Overnight, the S&P 500, the Dow, and the Nasdaq Composite hit record highs on the same day for the first time since March 21. The S&P 500 index rose 1.2% overnight, and the Dow rose about 350 points, or 0.9%. The index is less than 100 points away from the 40,000 point mark.

According to statistics, this is the 23rd all-time high closing record set by the S&P 500 index during the year. However, it has been about a month and a half since Wednesday reached its last record high.

Carol Schleif, chief investment officer at Mandike Bank Family Office, said, “Obviously, the market likes to see the inflation data weaken. Retail sales data is also weakening. This is very clear evidence that the US economy is out of boiling point and is operating at a more sustainable pace.”

In the bond market, 10-year US bond yields, known as the “anchor of global asset pricing,” fell to their lowest level in more than five weeks on Wednesday. The benchmark yield fell 9 basis points at the end of the session to 4.356%, and had earlier fallen to 4.34%, the lowest since April 5. The two-year US Treasury yield also fell 8 basis points to 4.736%, hitting an earlier low of 4.711% since April 5. The inverse between bond yields and prices.

Goldberg said that this set of inflation data keeps the door open for interest rate cuts, and I think they will cut interest rates in September as soon as possible.

However, when it comes to the most disappointing asset class in Wednesday's market, it is none other than the US dollar. The US dollar index, which measures the dollar against a basket of major currencies, fell overnight to a one-month low of 104.30, falling 0.66% at the end of the session to 104.35. The dollar had the highest decline against the yen, falling 0.96% to 154.94 yen.

The fall in the US dollar also boosted assets such as gold and bitcoin even higher. The price of Bitcoin soared above $66,000 on Wednesday, the best day since March 2023!

The price of gold rose to its highest level in nearly a month on Wednesday. Spot gold climbed more than 1% overnight and rose further to $2,396 during the Asian session on Thursday. It is likely that it will break through the $2,400 mark again during the day...

Editor/Somer