According to market consensus, today's December CPI report will show prices rising 6.5% year-on-year, down from 7.1% in November.
The US Consumer Price Index data met market expectations. The general CPI fell from 7.1% in November to 6.5% in December. The same thing happened with the core CPI, which fell from 6% to 5.7% in December. It is important to note that the month-on-month data for the general CPI was negative 0.1%, indicating not only were increases less steep but also the price level has fallen.
This data is clearly positive and shows a significant drop in inflation, the factor that has most influenced the latest monetary policy decisions of the Federal Reserve. However, the market was undecided for much of the session, with continued ups and downs in both the stock indices and the US dollar. Typically, the causes of this type of movement are diverse.
Judging from Thursday’s sessions it would appear the market’s reaction to the CPI figures was ‘priced in’. Looking at the composition of the CPI price data, we can see the services sector continued to rise, and this sector is now the one that worries the Federal Reserve the most because it shows no signs of cooling off.
When we combine these two factors with the number of jobless claims, which fell slightly at the same time as the CPI (lower jobless claims imply a tight labor market), we can see why, despite very positive inflation data, stock indices began to slip during today’s London session, bond yields rallied, and the dollar strengthened after yesterday’s rapid slide. Yesterday, EUR/USD surpassed 1.08 for the first time since April of last year.
The stock index market is now entering a period in which the publication of earnings by North American companies will determine its direction. Earnings season kicks off today with major banks like JP Morgan, Citibank, and Bank of America.
From a technical standpoint, it is interesting to note that the S&P 500 index is close to the trend line that has marked the index's bearish trajectory throughout 2022. A close above this level, around 4010, would signal the end of the downtrend and would portend significant bullish corrections.
Sources: Bloomberg, Reuters