US Markets Quiet as Inflation Concerns Weigh – Dow Up 0.25%
US markets experienced a quieter trading day yesterday as investors continued to weigh concerns about inflationary pressures heading into the new year while looking ahead to Friday’s key employment update.
The major indices oscillated around flat for most of the session. The Dow ultimately closed up 0.25%, the S&P 500 added 0.16%, and the Nasdaq edged lower by 0.06%. The dollar continued its recovery toward recent highs, with the DXY adding 0.37% on the day to move back above 109.00.
Treasury yields also saw a relatively muted session, with the 2-year yield drifting down 1.3 basis points to 4.279%, and the 10-year yield edging up 0.4 basis points to 4.689% by the close. Oil prices dropped after US inventories printed higher than expected, with Brent down 1.10% to $76.20 and WTI falling 1.24% to $73.31. Meanwhile, gold pushed higher, adding 0.5% on the day to trade at $2,661.35 by the close of the New York session.
Major Pairs Look Vulnerable as the Dollar Climbs
The US dollar climbed higher yesterday, with the Dollar Index nearing the multi-year high it reached in late December. Several major currencies are now sitting at vulnerable technical levels, and any breaks could accelerate the dollar’s rally.
Inflation concerns in the US have started to dominate market commentary in the first trading days of the new year, even before the new administration assumes its roles. Traders believe that if data continues to point to a strong US economy, these technical breaks could occur sooner rather than later.
The next major data release is tomorrow’s US employment report. If it comes in much stronger than expected, we could see significant volatility in FX markets during the final trading session of the week.
Calm Trading Day Ahead of the Non-Farm Storm
Traders are expecting a relatively calm trading day today ahead of tomorrow’s critical US employment data. While range-bound conditions are anticipated, a few key data releases could trigger market moves.
In the Asian session, two notable events are expected to impact their respective markets and potentially the broader global market. First, Australia’s latest retail sales figures are due, with the market forecasting a 1.0% month-on-month increase. A lower print could challenge the Aussie dollar’s recent lows.
Later, attention will turn to Chinese markets with the release of key CPI and PPI data midway through the day.
Both the European and US sessions have minimal scheduled data releases. However, several Federal Reserve members are set to speak later today, which could spark some market activity during the latter part of the trading session.
