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Beyond the Numbers

Traders Seem Relieved Consumer Price Growth Was Not Even Faster
1/12/2022 8:58 AM

The major U.S. index futures are currently pointing to a higher open on Wednesday, with stocks likely to see further upside after turning higher over the course of the previous session.

The futures have shown a positive reaction to the Labor Department’s highly anticipated report on consumer price inflation in December.

While the report showed the annual rate of consumer price growth once again reached the highest level in almost 40 years, traders seem relieved the acceleration was not even more significant.

The report showed the annual rate of consumer price growth accelerated to 7.0 percent in December from 6.8 percent in November, showing the biggest yearly jump since June of 1982.

Core consumer prices, which exclude food and energy prices, were up by 5.5 percent year-over-year in December compared to the 4.9 percent spike in November. The annual growth reflected the biggest surge since February of 1991.

The continued acceleration in the annual rate of consumer price growth came as prices increased by slightly more than expected on a monthly basis.

Treasury yields have moved to the downside following the release of the report, which may offset some of the interest rate concerns that dragged the markets lower to start the year.

After moving to the downside early in the session, stocks showed a significant turnaround over the course of the trading day on Tuesday. The major averages extended the recovery seen on Monday, with the tech-heavy Nasdaq posting a particularly strong gain.

The major averages moved roughly sideways going into the close, hovering in positive territory. While the Nasdaq surged 210.62 points or 1.4 percent at 15,153.45, the S&P 500 advanced 42.78 points or 0.9 percent to 4,713.07 and the Dow rose 183.15 points or 0.5 percent at 36,252.02.

With the strong upward move on the day, the Nasdaq climbed further off the nearly three-month intraday low set on Monday.

The turnaround on Wall Street came after Federal Reserve Chair Jerome Powell testified before a Senate Banking Committee hearing on his nomination for another term.

In prepared remarks, Powell highlighted elevated inflation as a result of supply chain issues and said the Fed would use all of its tools to prevent higher inflation from becoming entrenched.

"We can begin to see that the post-pandemic economy is likely to be different in some respects," Powell said. "The pursuit of our goals will need to take these differences into account."

He added, "To that end, monetary policy must take a broad and forward-looking view, keeping pace with an ever-evolving economy."

Powell later told the committee the Fed would be willing to raise interest rates more than currently expected to combat inflation.

While Powell's remarks have been described as "hawkish," they are not seen as indicating the Fed will be more aggressive than already suggested by the minutes of the central bank's latest meeting.

Treasury yields moved to the downside in reaction to Powell's testimony, with the benchmark ten-year yield continuing to give back ground after reaching its highest intraday level since January 2020 on Monday.

Energy stocks moved sharply higher on the day, benefiting from a substantial increase by the price of crude oil.

Reflecting the rally by energy stocks, the Philadelphia Oil Service Index soared by 4.3 percent and the NYSE Arca Oil Index shot up by 3.5 percent.

Significant strength also emerged among gold stocks, as reflected by the 2.1 percent jump by the NYSE Arca Gold Bugs Index. The strength in the gold sector came amid a notable increase by the price of the precious metal.

Housing, airline, and semiconductor stocks also saw considerable strength on the day, while interest rate-sensitive utilities stocks moved to the downside.

Commodity, Currency Markets

Crude oil futures are climbing $0.86 to $82.08 a barrel after spiking $2.99 to $81.22 a barrel a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $1,818.70, up $0.20 compared to the previous session’s close of $1,818.50. On Tuesday, gold jumped $19.70.

On the currency front, the U.S. dollar is trading at 115.19 yen compared to the 115.30 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.1398 compared to yesterday’s $1.1367.

Asia

Asian stocks posted strong gains on Wednesday after Federal Reserve Chair Jerome Powell did not provide any new details on interest rates at his Senate confirmation hearing.

Powell has made it clear interest rates will increase if inflation persists but also said he expects some of the supply chain problems that are pushing up prices will ease in the middle of this year.

Investors also digested Chinese inflation data and looked ahead to the release of U.S. December inflation data later in the day for further clues on the rate outlook.

Chinese shares rose notably as data showed inflationary pressure in the county eased further in December, thanks to lower food and commodity prices.

The benchmark Shanghai Composite Index advanced 29.99 points, or 0.8 percent, to 3,597.43, while Hong Kong's Hang Seng Index soared 663.11 points, or 2.8 percent, to 24,402.17, led by tech stocks.

Consumer prices in China were up 1.5 percent year-on-year in December, the National Bureau of Statistics said earlier today. That was shy of expectations for an increase of 1.8 percent and was down sharply from 2.3 percent in November.

The bureau also said that producer prices climbed an annual 10.3 percent, missing forecasts for an increase of 11.1 percent and slowing from 12.1 percent a month earlier.

China largely tamed its initial coronavirus outbreak with a mix of lockdowns, border closures and mass testing, but a recent flare up of cases, notably in Tianjin, has weighed on the growth outlook for the first quarter before the upcoming Spring Festival and the Winter Olympics.

Japanese shares rallied to snap a three-day losing streak. The Nikkei 225 Index ended up 543.18 points, or 1.9 percent, at 28,765.66 after having struck a nearly three-week low the previous day amid concerns over resurging coronavirus cases in the country. The broader Topix closed 1.6 percent higher at 2,019.36.

Heavyweights topped the gainers list, with technology investor SoftBank Group surging 6 percent and Fast Retailing, the operator of the Uniqlo casual clothing chain, rising 1.8 percent.

Tokyo Electron, a semiconductor equipment maker, jumped 3.8 percent, tracking gains among its U.S. peers overnight.

Australian markets gained ground, led by technology and resource-related stocks. The benchmark S&P/ASX 200 Index climbed 48.80 points, or 0.7 percent, to 7,438.90, while the broader All Ordinaries Index ended up 51.50 points, or 0.7 percent, at 7,762.20.

Buy now, pay later darling Afterpay soared 4.8 percent after saying it received an approval for its takeover. Strong commodity prices lifted miners, with heavyweights BHP and Rio Tinto rising 1.1 percent and 0.9 percent, respectively.

Gold miners Evolution, Northern Star Resources and Newcrest rallied 2-3 percent after bullion prices climbed. Woodside Petroleum and Santos jumped around 4 percent each after oil prices spiked nearly 4 percent overnight.

Seoul stocks rose the most in six weeks, as investors appeared pleased with a less-hawkish stance by Powell. The Kospi jumped 45.10 points, or 1.5 percent, to close at 2,972.48, logging the sharpest rise since December 2. Naver, Samsung Biologics and LG Chem soared 3-5 percent.

Europe

European stocks have moved higher on Wednesday after Federal Reserve Chair Jerome Powell sounded less hawkish than expected in Congressional testimony.

Powell indicated that interest rates are likely to rise this year but said monetary policy will take a broad and forward-looking view, keeping pace with an ever-evolving economy.

While the U.K.’s FTSE 100 Index has advanced by 0.8 percent, the French CAC 40 Index is up by 0.5 percent and the German DAX Index is up by 0.4 percent.

Commodity-related stocks have surged after China's consumer and factory-gate inflation growth both eased last month, giving policymakers scope to cut interest rates.

Grafton Group has also rallied. The international building materials distributor and DIY retailer said it expects adjusted operating profit for the year ended December 31, 2021 at the top end of expectations.

Supermarket group Sainsbury's has also shown a notable move to the upside after raising its full-year profit outlook.

French cloud computing company OVHcloud has also jumped. The company confirmed its full-year objectives after first quarter revenue topped forecasts.

TeamViewer shares have also soared 14 percent. The remote connectivity and workplace digitalization solution provider reported that its preliminary fourth quarter total billings increased by 20 percent or 17 percent on a constant currency basis, reflecting strong enterprise trading and continuous billings growth in the SMB segment.

Meanwhile, Dutch firm Philips has moved sharply lower after saying earnings would take a big hit from global supply chain shortages.

U.S. Economic Reports

Reflecting higher prices for shelter and used cars and trucks, the Labor Department released a report on Wednesday showing U.S. consumer prices increased by slightly more than expected in the month of December.

The Labor Department said its consumer price index rose by 0.5 percent in December following a 0.8 percent advance in November. Economists had expected consumer prices to rise by 0.4 percent.

Excluding food and energy prices, core consumer prices increased by 0.6 percent in December after climbing by 0.5 percent in November. Core prices were expected to advance by 0.5 percent.

The report also showed the annual rate of consumer price growth accelerated to 7.0 percent in December from 6.8 percent in November, showing the biggest yearly jump since June of 1982.

Core consumer prices were up by 5.5 percent year-over-year in December compared to the 4.9 percent spike in November. The annual growth reflected the biggest surge since February of 1991.

At 10:30 am ET, the Energy Information Administration is scheduled to release its report on oil inventories in the week ended January 7th.

Crude oil inventories are expected to decrease by 2.0 million barrels after falling by 2.1 million barrels in the previous week.

At 1 pm ET, the Treasury Department is due to announce the results of this month’s auction of $36 billion worth of ten-year notes at 1 pm ET.

Minneapolis Federal Reserve President Neel Kashkari is also scheduled to speak on the economic outlook for 2022 before a virtual St. Paul Area Chamber Town Hall at 1 pm ET.

At 2 pm ET, the Federal Reserve is due to release its Beige Book, a compilation of anecdotal evidence on economic conditions in each of the twelve Fed districts.

Stocks In Focus

Shares of Dish Network (DISH) are seeing significant pre-market strength after a report from the New York Post said the satellite TV provider is once again in merger talks with rival DirecTV.

Biopharmaceutical company Ocugen (OCGN) is also likely to move to the upside after saying a booster dose of its Covid-19 vaccine candidate Covaxin was shown to neutralize both the Omicron and Delta variants.

Shares of Ally Financial (ALLY) may also see initial strength after the bank announced a 20 percent dividend increase and a $2 billion stock repurchase program.

On the other hand, shares of Biogen (BIIB) may come under pressure after Medicare said it would only cover treatment with the biotechnology company’s Alzheimer’s treatment Aduhelm if patients were enrolled in a clinical trial.
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