Global equities may rally as investors remain optimistic that US inflation remains on the path to moderation and stocks may rally following the US Consumer Price Index report. Overall, however, we continue to see a cautious market with low trading volumes.
Cryptocurrency-linked stocks rallied in pre-market trading after the SEC approved ETFs that invest directly in Bitcoin.
However, all eyes remain on the inflation report, particularly further signs of cooling inflation, which could support optimism that the Fed is on the verge of cutting interest rates. Analysts expect core inflation to fall to 3.8% in December from 4% the previous month. I am rather skeptical that the inflation picture is so clearly showing disinflation, but confirmation that rates are falling would reinvigorate confidence that a rate cut is imminent – possibly as early as March. In particular, I expect the underlying CPI components to point to a slower pace of disinflation.
We also see yields falling and the 10-year government bond back below 4%, which also supports oil and gold prices, although oil is more affected by ongoing tensions in the Middle East.
Bitcoin is trading near $47,500 after the SEC gave the green light for ETFs. The largest digital currency had already rallied over 160% in the last 12 months in anticipation of the decision and loose monetary policy, so the reaction to the landmark SEC decision was rather mild. I still think Bitcoin is very attractive for medium to long term investment.
As I've said before, I'm skeptical that the CPI data in the US will show the picture that traders are hoping for, much less what the Fed would like to see – more evidence of significant disinflation and a weakening economy.
In 2023, however, we have seen stocks mostly rise on CPI days – albeit with a rather mild reaction. There is also a good chance that markets will initially react positively (which will also result in some USD selling) before realizing that the CPI data in the US does not point as clearly down the path of disinflation as hoped. I think the most likely outcome is that the CPI report does not provide the clear signals that investors are hoping for.
👁 ROB'S MARKET OVERVIEW:
⚠️ The markets will react to the US CPI data today. We will likely first see a moderately positive reaction, before slight profit taking returns. I see more risk of inflation report disappointing than actually further increase the already optimistic rate cut expectations.
January 11, 2024
🌐/🇺🇸 Global/US Markets ↗️/➡️/↘️
💱 Forex (US CPI report driven – this is if US CPI report doesn't change inflation picture / thus slight disappointment)
EUR, GBP ↗️/➡️
JPY, CAD, AUD ↗️/➡️/↘️
USD ↘️/➡️/↗️
CHF ➡️/↘️
⚒ Commodity Markets ↕️
Oil prices ↗️/↘️
Natural Gas prices ↘️
Metal prices ↕️/↘️
Gold ↗️/↕️/↘️
⚡️Cryptos ↗️/↕️ (positive sentiment around Bitcoin & co remains for now)
(*↗️ bullish, ↘️ bearish, ➡️ sideways / stable, ↕️ mixed / volatile)
Your Robert
