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Market is ready for CPI – calm before the storm?

One day remaining before traders get fresh inflation data. Will it spark volatility?

Traders are shifting focus on Thursday’s CPI data. Economists think that the consumer price index will drop from 7.1% in November to 6.5% in December. This is because car prices, oil prices, and rent prices are all going down. Hopes for a less hawkish Fed have gone up as more traders think there will be more signs of inflation pressures going down.

Nasdaq closed a healthy 1.58% gain while the Dow Jones closed 0.8% also in the green. The S&P 500 went up 1.28% on Wednesday, with consumer stocks leading the way. Amazon and Tesla, which announced plans to expand its electric vehicle factory in Texas, led the market’s gains. Amazon up almost 6% while Tesla 3.7%. 

When the annual CPI growth rate came in at 9.1% in June, it was the highest it had been in four decades. The December CPI number will show whether or not the Fed will keep lowering rates at its policy meeting on February 1st.

More to read: Focus on central banks: will ECB create havoc in Europe in 2023?

Between June and November, the Fed raised rates four times by a huge 75 basis points. In December, they only raised rates by 50 basis points. Most people think that the rate will go up by 25 basis points in February.

The dollar is retreating for now

On Wednesday, the euro briefly hit a seven-month high against the dollar, but it stayed in a narrow range. Traders didn’t want to make big moves before Thursday’s US inflation data on the forex market as well.

The euro hit $1.07765 up 0.15%, which was its highest level since May 31st. Recently, the dollar has been on the back foot as traders bet that the Fed won’t have to raise interest rates as quickly and as high as they thought they would have to in order to bring down inflation that won’t go away.

Since September, when it reached its highest level in 20 years, the dollar has lost almost 12% of its value against the euro. This is because data keeps showing that the Fed’s rate hikes are having the effect they were meant to have, which is to cool the economy and slow inflation.

You may also like: FX outlook for 2023: where are the main currency pairs heading?

After data showed that annual inflation rose to 7.3% in November, the Australian dollar moved up by 0.17% to $0.6905. This means that there is room for more rate hikes.

Oil gets closer to $80

Separately, the EIA said on Wednesday that US crude stockpiles rose by almost 19 million barrels, which is 11 times more than the week before. Goldman Sachs also called for crude at $100 in 2023.

West Texas Intermediate, or WTI, ended the day up $2.29, or 3%, at $77.41. During the session, it reached a high of $77.81. London’s Brent crude, ended the day up $2.57, or 3.2%, at $82.67. During the day, it reached a high of $82.94.

Another interesting topic: Crypto outlook for 2023: more pain to come or will Bitcoin recover?

Silver futures lost the third day this week, closing a 0.53% decline, while its big golden brother closed 0.28% in the green again.

Prices for natural gas have dropped to their lowest level in almost a year and a half, thanks to a mild winter and a good supply of gas. But Russia’s war in Ukraine, which stopped supplies last year, is still a risk.

Tomáš is a financial reporter with US markets as his main field. He actively started in finance only recently, however has been surrounded by many analyst and reporting professiona...

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