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Markets brace for Fed’s key inflation gauge

A trader works during the closing bell at the New York Stock Exchange (NYSE) on March 17, 2020 at Wall Street in New York City. 

Johannes Eisele | Afp | Getty Images

This report is from today’s CNBC Daily Open, our international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

What you need to know today 

Asia stocks mixed
Asia markets
were mixed Thursday as investors awaited key U.S. inflation data. Hong Kong’s Hang Seng index as well as China’s CSI 300 rose. But Japan’s Nikkei 225 fell and the Topix dipped. Overnight, Wall Street ended lower as the 30-stock Dow slipped 0.06% and fell for a third consecutive session. The S&P 500 inched down 0.17%, while the Nasdaq Composite fell 0.55%. 

Google’s Gemini problem
In a memo to employees, Google CEO Sundar Pichai addressed the company’s artificial intelligence blunders. This comes after the tech giant was forced to take its Gemini image-generation feature offline for further testing. Pichai called the issues “problematic” and said they “have offended our users and shown bias.”  

Water scarcity threatens chip makers
Water shortages could threaten semiconductor firms such as Taiwan Semiconductor Manufacturing Company, S&P Global Ratings said in a report. However, the world’s largest contract chip maker’s dominance allows it to “lock in end demand and compensate for lower unit sales with price rises,” added the credit ratings firm.

Taking aim at Nvidia
Geely-backed car tech firm Ecarx is emerging as a contender in the booming electric car industry. While Nvidia has an edge when it comes to AI-based autonomous driving systems, Ecarx is aiming for the mass market and will launch new products that compete with the U.S. chip giant, co-founder and CEO Ziyu Shen told CNBC.

[PRO] A lesser-known pharma standout
Investors have been piling into major weight-loss drug manufacturers like Eli Lilly and Novo Nordisk. But fund manager Freddie Lait picked a lesser-known firm that also stands out: McKesson Corp — the U.S. pharmaceuticals distribution company. Calling the company an “exciting idea,” Lait noted that the 100-year-old business is “very defensive and very diversified.”

The bottom line

Wall Street is bracing for a key inflation gauge that will affect investors’ view on interest rates.  

All eyes will be on the personal consumption expenditures reading for January out today — the Fed’s favorite inflation indicator. Investors are hoping to see data that signals inflation is finally easing.

Fed officials have made it clear they want to see more evidence of disinflation before committing to rate cuts.

Federal Reserve Governor Michelle Bowman signaled caution this week, saying upside risks to inflation linger that could stall progress or even cause price pressures to reaccelerate.  

“My baseline outlook continues to be that inflation will decline further with the policy rate held steady,” Bowman said Tuesday. “I will remain cautious in my approach to considering future changes in the stance of policy.”

This PCE report comes on the heels of hotter-than-expected consumer and producer prices that dealt a one-two punch to markets. And Fed watchers expect the trend to continue, with PCE also coming in slightly hot.

“The core personal consumption expenditure index is supposed to uptick slightly and that could cause the Fed to hold off on cutting interest rates till June,” said Louis Navellier, chairman and founder of Navellier & Associates, in a commentary.

He added the PCE data “will be a big deal” for Wall Street. “We’ll see how it affects the bond market and investor perceptions.”

A disappointing reading could reinforce investor fears the Fed may further delay rate cuts and interest rates could stay higher for longer.

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