KGI Asia Commentary

Dow hits biggest drop since March after inflation report

The Dow Jones Industrial Average fell sharply on Tuesday, recording its biggest one-day drop since March 2023, as a stronger-than-expected U.S. inflation report cooled market expectations for an earlier and more aggressive interest rate cut cycle by the Federal Reserve, causing U.S. Treasury yields to surge. The Dow Jones Industrial Average fell 524.63 points to close at 38,272.75 points, a decrease of 1.35%, which was the largest trading day drop since March 2023. The index once fell 757.52 points, or 1.95% during the session. The S&P 500 fell 1.37% to close at 4,953.17 points, and the Nasdaq fell 1.8% to close at 15,655.60 points. The Russell 2000 Index also took a heavy hit, recording its largest one-day drop of nearly 4% since June 2022. After the CPI data was released, the 2-year U.S. Treasury bond yield jumped to over 4.66%, and the 10-year U.S. Treasury bond yield exceeded 4.32%. Technology stocks such as Microsoft and Amazon led the way lower on Tuesday after leading the market to record highs as interest rates fell. Microsoft and Amazon both fell more than 2%. Meanwhile, Nvidia avoided heavy selling and closed only slightly lower after Mizuho raised its price target on the stock to $825 from $625. The chipmaker will continue to dominate the market amid rising demand for artificial intelligence. Coca-Cola Co. reported better-than-expected fourth-quarter results, sending its shares down less than 1%. Biogen shares fell more than 7% after the company reported lower-than-expected profit and revenue in its latest quarter as competition and pricing pressure led to weaker sales. Hasbro also suffered a setback in its earnings phase, with its fourth-quarter results and guidance falling short of Wall Street expectations, sending its shares down more than 1%. The toymaker's performance was dragged down by its entertainment unit, which was pressured by industry strikes, as well as losses from goodwill and intangible asset impairment charges.

Inflation higher than expected in January

The consumer price index rose 0.3% in January from December. CPI was up 3.1% on an annual basis. Economists polled by Dow Jones expected CPI to have increased by 0.2% month over month in January and 2.9% from a year earlier. Excluding volatile food and energy prices, the so-called core CPI accelerated 0.4% in January and was up 3.9% from a year ago, unchanged from December. The forecast had been for 0.3% and 3.7%, respectively. Shelter prices accounted for much of the rise, climbing 0.6% on the month, contributing more than two-thirds of the headline increase. On a 12-month basis, shelter rose 6%.