Stocks Recover Cautiously on Lighter-Than-Expected CPI: March 12, 2025

Stocks are recovering in an indecisive, dead-cat bounce fashion following this morning’s lighter-than-expected CPI, which offered music to the ears of equity bulls. The print depicted broad-based deceleration ahead of prospects for expanded tariff implementation next month that could drive inflationary pressures north. Moreover, the results were a welcome reprieve to a market that has had a rough going as of late and could use some support from friendly data. As for the Fed meeting next week, benign price trends are especially desirable at this juncture considering that growth worries are top of mind, presumably providing the central bank with room to support the economy and markets this year with a rate cut or two. Emblematic of this development, the IBKR ForecastTrader prediction market assigns a 39% probability of a quarter-point reduction to the fed funds benchmark in May.

Source: ForecastEx

CPI Sooths Inflation Fears

The pace of consumer price increases slowed last month, according to this morning’s Consumer Price Index (CPI) from the US Bureau of Labor Statistics. The February CPI rose just 0.2% month over month (m/m) and 2.8% year over year (y/y), a tenth lighter than expectations on both fronts and notably lower than January’s 0.5% and 3%. The core segment, which excludes food and energy due to their volatile characteristics, also came in at 0.1% below forecasts at 0.2% m/m and 3.1% y/y. The core results decelerated from the previous month’s 0.4% and 3.3%.

Most major categories experienced higher charges, but the favorable news is that several major contributors saw costs decelerate, namely shelter, the index’s largest component. Leading prices north last month, however, were energy services (electricity and heating), used automobiles, apparel and food at dining establishments and drinking parlors, which saw their stickers raised 1.4%, 0.9%, 0.6% and 0.4%. Shelter, medical care services and medical commodities sported modest increases on a relative basis, rising 0.3%, 0.3% and 0.1% during the period. Meanwhile, gasoline, transportation services and new automobiles presented relief, seeing costs decline 1%, 0.8% and 0.1%. Airfares provided reprieve in the transportation category, dropping 4% m/m, just as several providers have expressed concerns about weaker bookings in the coming months, while shelter prices decelerated by 0.1% m/m. Food at markets was unchanged as an uptick in egg charges were offset by broad declines elsewhere.

Economic Concerns Thwart Early Recovery

Equities and Treasurys took the initial news of the weaker-than-anticipated CPI in stride before retreating into losses on anxiety stemming from slower growth prospects and the potential inflationary impacts of tariffs. The mix has investors gravitating toward foreign stocks as well as the commodity complex, which tends to benefit during times of strong price pressures. In the US, however, the Dow Jones Industrial, Russell 2000 and S&P 500 indices are losing 0.6%, 0.3% and 0.1%, but the Nasdaq 100 is bucking the trend; it’s up 0.7%. Sectoral breadth is deeply negative through, with just energy and technology gaining out of the 11 major segments; they’re up 1.2% and 0.2%. Conversely, representing the laggards are consumer staples, healthcare and utilities; those components are losing 1.9%, 0.9% and 0.7%. Treasurys are heavier, with the 2- and 10-year maturities changing hands at 3.97% and 4.31%, 2 basis points (bps) higher on the session. The greenback is indecisive and near its flatline, meanwhile, as the US currency appreciates against the franc, yen and yuan but depreciates relative to the euro, pound sterling, loonie and Aussie tender. Commodities are performing strongly minus lumber as higher borrowing charges weigh on the critical construction material. Crude oil, copper, silver and gold are higher by 1.8%, 1.1%, 0.4% and 0.4%. WTI is trading at $67.75 per barrel as sharp declines in stateside gasoline and distillate supplies offset a modest increase in crude inventories in this morning’s weekly US Energy Information Administration report.

Trump Bumps Continue

This morning’s reversals in equities and rates represent weak sentiment among market participants. In stocks, the U-turn was driven by growth risks, as investors fear that the headwinds of protectionism, austerity and immigration restriction will weigh on corporate fundamentals. But in Treasurys, the turnaround was motivated by the potential for inflationary pressures to reignite, despite this morning’s CPI pleasing to the downside. The anxiety is justified since the full impact of tariff forces will make their way into the numbers in future months, when levy implementation is wider spread across the Americas, Europe and Asia. In light of these possibilities, the IBKR ForecastTrader marketplace thinks that the core CPI will still be above 3.1% come September, assigning odds of 52%. Finally, IBKR ForecastTraders can navigate volatile asset prices through products that are generally immune to the turbulence in traditional financial markets by relying on their rational thinking and investment strategy to optimally time the undervalued “Yes” or “No” choices.

Source: ForecastEx

International Roundup

Japan’s Produce Price Index Climbs

Japan’s Producer Price Index increased 4% y/y and was flat m/m in February compared to 4.2% and 0.3% gains in the first month of the year. The y/y result matched the consensus expectation, and the m/m number was only slightly higher than the forecast for a contraction of 0.1%. Producers commanded 1.2% y/y and 0.5% higher prices when exporting while costs for imports sank 1.6% y/y but climbed 0.5% m/m. Among exports, both the transportation category and the metals and related products group increased 0.2% m/m, leading the overall benchmark. Conversely, the general purpose, production and business-oriented machinery classification and the electric and electronic products groups declined 0.2% and 0.1%. Among imports, the petroleum, coal and natural gas segment had the highest price increase with a gain of 0.34% while electric and electronic products descended 0.02%.

Korea Posts Second Consecutive Monthly Job Gain

Korea’s employed workforce grew by 136,000 y/y in February, marking the second-consecutive monthly increase and the country’s unemployment rate fell from 2.9% during the first month of the year to 2.7%. During February, the country surrendered jobs in manufacturing and construction but added positions in the public health and social welfare field and the science and technology services sector.

The Bank of Canada Trims Key Rate

The Bank of Canada (BoC) sliced 25 bps from its key interest benchmark, bringing the rate to 2.75%. In making the change—which is the BoC’s seventh consecutive cut—policymakers said the economy has been strong, but they noted that the trade conflict with the US is hurting sentiment, consumer spending and employers’ plans to hire workers.  

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