Stocks had a hard time finding direction as the latest inflation numbers underwhelmed traders waiting for a bigger deceleration that could allow the Federal Reserve to cut interest rates before the end of 2023.
(Bloomberg) — Stocks had a hard time finding direction as the latest inflation numbers underwhelmed traders waiting for a bigger deceleration that could allow the Federal Reserve to cut interest rates before the end of 2023.
So after a two-day rally and a consumer price index that came just in line with expectations, Wall Street found little encouragement to sustain a bigger advance, with the S&P 500 swinging between gains and losses. And that’s even with dovish signals from the swap market, which is showing less than 50 basis points of tightening priced in for the next two Fed meetings — implying a small chance of no move at all in March.
When paired with prior months’ lower-than-expected readings, the December CPI may indeed pave the way for the Fed to downshift to a quarter-point hike at its next meeting ending Feb. 1. That said, the central bank’s work is far from over. Resilient consumer demand, particularly for services, combined with a tight labor market threaten to keep upward pressure on prices.
“Today’s CPI reading is another sign that inflation is heading in the right direction and indicates the peak is likely in the rear view,” said Mike Loewengart, head of model portfolio construction at Morgan Stanley Global Investment Office. “The market’s timid initial response may be a sign that while they acknowledge inflation is slowing, rate cuts likely aren’t on the agenda anytime soon.”
To Krishna Guha at Evercore ISI, while Thursday’s report is consistent with the Fed slowing the pace of rate hikes to 25 basis points in February, he also expects the central bank to make a “hawkish 25.”
That would possibly be in line with what a raft of Fed officials has been recently telegraphing. In other words, they have signaled openness to making a 25 basis-point rate increase right at their next meeting, while also stressing that the central bank still has more work to do to tame prices — and are not anticipating rate cuts this year.
One clear example came this morning, when Federal Reserve Bank of Philadelphia President Patrick Harker said the central bank should lift interest rates in quarter-point increments “going forward.” At the same time, he also reiterated that officials expect to hold rates at higher levels to give them time to travel through the economy.
Key events this week:
- China trade, Friday
- US University of Michigan consumer sentiment, Friday
- Citigroup, JPMorgan, Wells Fargo report earnings, Friday
This week’s MLIVE Pulse Survey:
Some of the main moves in markets:
Stocks
- The S&P 500 was little changed as of 11:47 a.m. New York time
- The Nasdaq 100 was little changed
- The Dow Jones Industrial Average rose 0.4%
- The Stoxx Europe 600 rose 0.6%
- The MSCI World index rose 0.5%
Currencies
- The Bloomberg Dollar Spot Index fell 0.6%
- The euro rose 0.6% to $1.0817
- The British pound rose 0.2% to $1.2174
- The Japanese yen rose 2% to 129.77 per dollar
Cryptocurrencies
- Bitcoin rose 3.1% to $18,113.33
- Ether rose 3.2% to $1,385.85
Bonds
- The yield on 10-year Treasuries declined three basis points to 3.51%
- Germany’s 10-year yield declined four basis points to 2.16%
- Britain’s 10-year yield declined seven basis points to 3.34%
Commodities
- West Texas Intermediate crude rose 2.2% to $79.08 a barrel
- Gold futures rose 0.9% to $1,896.20 an ounce
This story was produced with the assistance of Bloomberg Automation.
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