Wall Street: stocks steady ahead of pivotal CPI release

US stock reaction to last Friday's NFP report

US stock markets rebounded on Friday, supported by Megatech, despite a firmer-than-expected jobs report that saw yields end the week at their highest closing level this year.

Within the details of Friday's non-farm payrolls report, the US economy added 303k jobs in March; 100k more than the consensus forecast. The unemployment rate ticked lower to 3.8% from 3.9% prior.

Providing some comfort to the hot headline jobs numbers, average hourly earnings fell to 4.1% year-on-year (y-o-y), the lowest level since the pandemic, and Fed Chair Powell's comments at the 20 March FOMC meeting that a strong labour market won't warrant a delay to rate cuts.

Furthermore, the Fed has made it clear that inflation data, particularly core PCE, is the key to cutting rates. In that light, this week's CPI and PPI data, which feeds through into Core PCE inflation data due for release on 26 April, will come under close scrutiny and provide further insights into the timing and scope of possible rate cuts.

The probability of a 25bp Fed rate cut in June starts the week at 51%, with 71bp of rate cuts priced for 2024. As noted last week, the risks appear to be for fewer or delayed rate cuts due to strong US economic growth and sticky inflation.

What is expected from CPI

Date: Wednesday, 10 April at 10.30pm AEDT

February headline inflation in the US rose by 0.4% month-over-month (m-o-m), bringing the annual rate of inflation to 3.2%, above the 3.1% expected. Core CPI also rose by 0.4% m-o-m, allowing the annual rate of core inflation to ease to 3.8% from 3.9% in January, but above market forecasts of 3.7%.

Although the headline and core inflation rates were higher than expected, within the details, there was a sharp normalisation in non-housing services inflation, and declines were observed in the supercore measure and the problematic owner's equivalent rent category.

Further soothing nerves, Fed Chair Powell has reassured several times of late that despite hotter-than-expected inflation readings this year, inflation was on a "bumpy" road to 2% and that the central bank expects to lower rates at "some point" this year.

This month, the expectation is for headline CPI to rise by 0.4% m-o-m, which would see the annual rate climb to 3.5%. Core CPI is expected to rise by 0.3% m-o-m, which would see the annual rate ease to 3.7% from 3.8%.

US core inflation rate chart

Source: TradingEconomics

S&P 500 technical analysis

The S&P 500 kicked off the first week of the second quarter of 2024, locking in a decline of -0.95%. Thursday's big red candle from record highs left a short-term bearish shadow over the market. To negate its legacy and open up a move towards 5240, the S&P 500 needs to break above resistance at 5265, which comes from the 28 March high.

Until then, a deeper pullback into support at 5055/5040 cannot be ruled out and if the S&P 500 were to see a sustained break of support at 5055/5040, it would warn that a medium-term high is likely in place and that a deeper pullback towards 4800 is underway.

S&P 500 daily chart

Source: TradingView

Nasdaq technical analysis

The Nasdaq kicked off the first week of the second quarter of 2024 with a modest decline of -0.80%. Like the price action in the S&P 500, last Thursday's aggressive sell-off has left some short-term bearish scar tissue in place. To negate its legacy and to open up a move towards 18,750, the Nasdaq needs to rebound above resistance at 18,400/18,464, coming from previous highs.

Until then, a deeper pullback into support at 17,750/700 cannot be ruled out. If the Nasdaq were to see a sustained break of support at 17,750/00, it would warn that a medium-term high is likely in place and that a deeper pullback towards 17,000 is underway.

Nasdaq daily chart