The indices on Wall Street reached new all-time highs yesterday, but were unable to defend their record levels. Ahead of today's US CPI report, investors reduced their risk positions after the recent record run.
The interest rate-sensitive Nasdaq 100 fell 0.7%, while contracts on the S&P 500 fell 0.4%. The Dow Jones is little changed. The S&P 500 hit a new all-time high of 5,050 yesterday and the Nasdaq 100 also breached the key 18,000 level. Much of the gains were due to initial strong gains in Nvidia and other major chip stocks before profit taking set in towards the end of US trading.
The inflation report is widely expected to show a reading below 3% (YoY) for the first time since March 2021. However, investors are concerned that this figure – especially as core inflation remains above headline inflation – is not enough to justify rate cuts. I also believe that rate cut expectations remain too optimistic and think a first rate cut before June is unlikely. However, I expect headline and core inflation to continue to show signs of improvement and believe that combined with the robust US economic data and strong earnings report, Wall Street can resume the rally following the CPI data.
While most of the focus will be on headline inflation and whether it can cool to 2.9% (below 3%) after the surprisingly high December reading, core inflation data will be more important. In my opinion, the most likely scenario is that core inflation will be in line with expectations or even report slightly cooler given recent signs of cooling in the US housing market. Should core inflation MoM come in at 0.3% or even 0.2%, while the YoY reading also cools to 3.6% – 3.7% YoY (from 3.9%), I expect markets to rally and the USD to temporarily weaken.
If core inflation MoM is at 0.4% or the YoY reading is in the 3.8% – 3.9% range, we will see another wave of selling in New York and the USD will reach new 2024 highs.
In commodity markets, oil prices continue to rise while the moves in gold suggest that gold traders expect disinflation to continue after the pause in December – I believe the same. Despite the current healthy correction in outperforming tech stocks, we see a mostly positive market sentiment, which is also reflected in the strong performance of Bitcoin, which reached $50,000 for the first time since late 2021.
👁 ROB'S MARKET OVERVIEW:
⚠️ We expect US CPI data to show that the US inflation picture continues to improve which would support the overall positive market sentiment
February 13, 2024
🌐/🇺🇸 Global/US Markets ↕️/↗️ (depending on today's CPI data – as we think the inflation picture improves, we will likely see a rebound from recent profit taking)
Cyclical Stocks ↕️/↗️
Tech/Growth Stocks ↕️/↗️
Financial Stocks ↘️/➡️
Defensive Stocks ➡️
Energy Stocks ↗️/➡️
Materials Stocks ➡️/↗️
💱 Forex
GBP ↗️ (after stronger than expected UK data)
EUR, CAD ↗️/➡️
USD ➡️/↘️ (entirely depending on today's CPI data)
AUD ↘️/↗️
JPY ↘️/➡️
CHF ↘️ (after cool inflation report, making rate cuts increasingly likely)
⚒ Commodity Markets ↕️/↗️ (if CPI data shows inflation picture improves)
Oil prices ↕️/↗️
Natural Gas prices ➡️
Metal prices ↕️/↗️
Gold ↕️/↗️ (benefiting from a cooler USD – if US CPI data shows inflation picture improves)
⚡️Cryptos ➡️/↗️ (after breaking the $50K – expectations for further gains rise)
(*↗️ bullish, ↘️ bearish, ➡️ sideways / stable, ↕️ mixed / volatile)
Your Robert
