CNBC Daily Open: Wall Street on edge over Fed’s key inflation gauge

A trader works, as a screen displays a news conference by Federal Reserve Board Chairman Jerome Powell following the Fed rate announcement, on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., December 13, 2023. 

Brendan Mcdermid | Reuters

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 

Markets decline
Wall Street
ended lower Wednesday as investors anxiously wait for the personal consumer expenditures reading for January due today. The 30-stock Dow slipped 0.06% and fell for a third consecutive session, while the S&P 500 inched down 0.17%. 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.”  

Apple bets big on AI
Apple CEO Tim Cook said the iPhone maker is “investing significantly” in artificial intelligence, while teasing a major announcement which he gave little details of. “Later this year, I look forward to sharing with you the ways we will break new ground in generative AI, another technology we believe can redefine the future,” Cook said.

Disney’s India merger
Walt Disney and Indian conglomerate Reliance will merge their Indian businesses in a $8.5 billion joint venture. Reliance, led by Asia’s richest man, Mukesh Ambani, will control the JV and inject $1.4 billion into its growth strategy, upon completion of the transaction.

[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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