Inflation Rises Again, Rate Hike Becomes Reality

This is a headline figure, up 0.4% from the previous month, an expansion from last month's 0.1% increase.

Core CPI rose 0.3% month-over-month, with the actual year-over-year figure reaching 2.446%.

This reflects the market's high inflation concerns and the Federal Reserve's (Fed) tightening policy stance.

Nevertheless, all three major New York stock indices closed higher. This is interpreted as the market having largely preemptively priced in the possibility of a rate hike, building resilience.

Stock-specific differentiation was pronounced in the market. While biopharmaceutical stocks generally showed weakness, AI data center energy-related stocks recorded strength.

Dell Computer, in particular, rose 11.9%, reflecting expectations related to AI data center construction. Oracle showed weakness due to profit-taking despite announcing positive guidance.

The Philadelphia Semiconductor Index rose 1.8% overall, indicating a robust trend in the semiconductor sector.

From a historical perspective, a view emerged that the current high-interest rate level, with 10-year Treasury yields at 5%, is an average. An analysis was presented that the growth of the U.S. economy begins with artificial intelligence (AI) and AI data centers.

It was argued that a 'New Normal' era is arriving, where current interest rate levels must be accepted based on such growth rates. This is interpreted as a recognition that high interest rates can be accommodated if supported by high growth rates.

According to FedWatch, the probability of the Federal Reserve (Fed) raising interest rates at the next Federal Open Market Committee (FOMC) meeting has exceeded 86%. Such continuous signals of rate hikes are creating a restrictive environment for the stock market.

The market appears to be more interested in future additional rate hikes than in the rate hike itself. This reflects investors' sentiment, who are watching for the peak of the rate hike cycle and the possibility of subsequent easing.

This is a result of the complex interplay of global economic slowdown concerns and efforts towards energy transition.

The main reason for the demand reduction was analyzed to be due to refinery supply impasses rather than environmental factors. Crude oil production disruptions and uncertainties in refinery operations appear to be complexly affecting the market.

This is intensifying shortages of petrochemical feedstocks and middle distillates, particularly in the Asian region.

Such supply disruptions are expected to lead to high fuel prices, especially for diesel, putting pressure on consumption. There are also observations that the normalization of refinery operations will be pushed back to next year.

Domestic refinery companies may take advantage of the refined product shortage in Asia to increase export volumes. This is expected to act as a factor securing price rigidity for domestic diesel prices.

The S&P 500 index rose 0.86% from the previous day, the Dow Jones Industrial Average rose 0.98%, and the Nasdaq Composite index rose 0.96%.

The Philadelphia Semiconductor Index also rose 1.8%, continuing the strength of technology stocks. Major big tech stocks such as Apple also showed robust gains, leading the overall market upward trend.

This led to a surge in short-term Treasury yields.

The U.S. bond market is analyzed to have already fully priced in the Federal Reserve's (Fed) possibility of raising interest rates. The rise in short-term yields indicates the market's high expectations for further rate hikes in the future.

The 1-year inflation expectation announced by the University of Michigan rose from the previous 4.0% to 4.6%. The 5-year inflation expectation also slightly increased from 3.3% to 3.4%, indicating an overall rise in inflationary expectations.

In contrast, the consumer sentiment index and consumer expectations index showed a significant decline month-over-month. This suggests that inflationary pressures and concerns about rate hikes are negatively impacting consumer sentiment.