Markets slip as hotter-than-expected CPI report spooks investors

Dow fell 225, decliners over advancers about 5-2 & NAZ crawled up 6.  The MLP index dropped 4+ to the 313s & the REIT index was off 3+ to the 406s.  Junk bond inched a tad lower & Treasuries were heavily purchased, driving yields higher.  Oil sank about 2 to the 71s & gold declined 12 to 2920 (more on both below).

Dow Jones Industrials

A Federal Reserve interest rate cut won't be coming until at least Sep, if at all this year, following a troubling inflation report today, according to updated market pricing.  Futures markets shifted from the expectation of a Jun cut & possibly another before the end of the year to no moves until the fall, with a minimal chance of a follow-up before the end of 2025.  Reduced optimism for Fed easing came after the Jan consumer price index report showed a 0.5% monthly gain, pushing the annual inflation rate to 3%, a touch higher than Dec & only slightly lower than the 3.1% reading in Jan 2024.  Excluding food & energy, the news was even worse, with a 3.3% rate that showed core inflation, which the Fed tends to rely on more, also rising & holding well above the central bank's goal.  Fed Chair Jerome Powell, in an appearance today before the House Financial Services Committee, insisted the Fed had made “great progress” on inflation from its cycle peak “but we’re not quite there yet. So we want to keep policy restrictive for now.”  As the Fed targets 2% inflation & the report showed no recent progress, it also dimmed hopes that the central bank will view further policy easing as appropriate after it lopped a full percentage point off its benchmark short-term borrowing rate in 2024.  Fed funds futures pointed to just a 2.5% chance of a Mar cut; only 13% in May, up to 23% in Jun, then 41% in Jul & finally up to 56% in Sep, according to the CME Group's FedWatch gauge.  However, that would leave the probability still up in the air until Oct, when futures contracts pricing implies a 62% probability.  Odds of a 2nd cut by the end of 2025 were at just 31%, with pricing not indicating another reduction until late 2026.  The fed funds rate is currently targeted at 4.25%-4.50%.

Hopes for more Fed rate cuts dim as Powell notes hot CPI means ‘we’re not quite there yet’

Chevron (CVX), a Dow stock & Dividend Aristocrat, will slash 15-20% of its workforce as the oil major implements a plan to lower costs, the company announced.  The layoffs will begin this year with most of the cuts complete before the end of 2026.  CVX is looking to reduce costs by $2-3B by the end of next year.  ″We do not take these actions lightly and will support our employees through the transition,” Vice Chair Mark Nelson said.  “But responsible leadership requires taking these steps to improve the long-term competitiveness of our company for our people, our shareholders and our communities.”  The company missed 4th-qtr earnings expectations, as its fuel business posted a loss of $248M compared with a profit of $1.15B in prior year, as refining margins have fallen.  The stock fell 2.51.

Chevron will slash up to 20% of its workforce as part of cost-cutting plan

The federal gov posted a $129B budget deficit for Jan, up sharply from an unusually low $22B deficit in Jan 2024 due to calendar shifts in benefit payments as well as outlays for Social Security, Medicare, interest & other items that grew faster than receipts, the Treasury said.  Jan receipts came in at $513B, up 8% or $36B from a year earlier & Jan outlays were $642B, up 29% or $143B from a year earlier.  Excluding the calendar shifts, the adjusted deficit increase for Jan would have been $21B.  But the YTD deficit came in at a record $840B for the first 4 months of fiscal 2025, which started on Oct 1.  That was up 58% ($308B) from a year earlier, an increase that a Treasury official said was due partly to the prior year tax receipts being inflated by some $85B deferred tax payments from the previous fiscal year.  YTD receipts came in at $1.596T, up 1% or $11B from the same period a year earlier, while outlays totaled $2.436T, up 15% or $319B from the prior year period.  Both outlays & receipts for the first 4 months of fiscal 2025 also were records for the period.

U.S. posts $129 billion January deficit on calendar shifts, higher outlays

Gold's price is facing profit-taking pressure & trades below $2900 throughout today after Federal Reserve Chair Jerome Powell went to Capitol Hill for his semi-annual testimony before lawmakers the previous day.  Powell did not say much but stated that the current level of the monetary policy rate is helping the central bank to withstand market volatility & potential inflation shocks that could take place.  The comments were enough to fuel a surge in US bond yields.  Meanwhile, traders see their beloved Fed under pressure from the Dept of Gov Efficiency (DOGE), led by Elon Musk, who already mentioned at the beginning of the week that the Fed will face scrutiny from DOGE, as it will from all other gov agencies.  DOGE has already tried accessing all Treasury Data, though access to the Treasury system remains blocked for now.

Gold sees weekly gains evaporate on Fed-infused decline

Oil prices fell 1%, ending 3 days of gains, as industry sources pointed to rising US crude stockpiles & hawkish remarks from Fed Chair Jerome Powell that signaled slower rate cuts this year.  Brent futures were down 67¢ (0.9%) at $76.33 a barrel, while West Texas Intermediate (WTI) crude dropped 75¢ (1.0%) to $72.57 a barrel.  The declines come after 3 days of gains during which Brent climbed 3.6% & WTI rose 3.7%.  Prices resumed their downtrend as the macro environment weighed on sentiment, with Jerome Powell indicating that the Fed was not in a rush to lower rates.  At the same time, traders are eying the weekly US EIA oil data release, looking to see if the sizeable 9M barrel build in crude stocks reported by the API yesterday materializes in the official data.  Federal Reserve Chair Jerome Powell said that the economy is in a good place & the Fed isn't rushing to cut interest rates further, but is prepared to do it if inflation drops or the job market weakens.  Higher interest rates increase the cost of borrowing, which can slow economic activity & dampen demand for oil.

Oil prices fall on rising US crude stocks, hawkish Fed comments

Stocks continued to be largely lower as investors digested a Jan inflation reading that was hotter-than-expected.  Meanwhile, markets are on alert for more policy surprises from Trump, who is expected to announce reciprocal tariffs on many countries before the end of the week.