Risk Surges Higher After CPI Data – Nasdaq up 2.45%
U.S. stocks and bonds surged yesterday after weaker-than-expected CPI data hit the market. All three major U.S. indices spiked higher after the core data came in 0.1% lower than anticipated. The Dow jumped 1.65%, the S&P 1.83%, while the Nasdaq surged 2.45% by the close. U.S. Treasury yields pulled back from multi-year highs, with the 2-year losing 10.3 basis points to drop back to 4.264%, and the benchmark 10-year losing 13.9 basis points to fall back to 4.653%. The dollar took an initial hit against the majors before gaining back some ground later in trading, with the DXY finishing the day down 0.18% at 109.07.
Oil prices leapt as U.S. inventories fell to their lowest level since 2022, with both Brent and WTI gaining over 3%, despite being capped by news of a ceasefire between Hamas and Israel. Brent closed up 3.18% at $82.46, and WTI rose 3.28% to $80.04 a barrel. Gold prices also gained, with the precious metal adding 0.74% during the day to finish at $2,696.85.
US Inflation Numbers Overhyped?
U.S. markets jumped strongly overnight after key CPI data came in lower than expected. However, some traders are concerned that the moves are overextended, given the difference from expectations was only 0.1% month-on-month. Most market participants agree that while the data is a positive indicator for investors, it will not change the path of Fed rate cut expectations. Consequently, some believe that the moves in bonds and the equity market may correct in the upcoming sessions.
FX players, who like to consider themselves ahead of the game, point to the fact that the dollar only dropped 0.18% by the end of the day. They feel this is more in line with the data differential. Traders are now looking for additional data to confirm the inflation trends seen this week—both PPI and CPI missed estimates—before getting too excited about potential Fed rate cuts. This is especially relevant with a new government about to be established in Washington, D.C., next week.
Another Busy Day Ahead for Traders
It looks like another busy day lies ahead for financial markets, as big moves in the U.S. market should lead to follow-through in upcoming sessions, with fresh data releases added to the mix. The Asian session will see early focus on Australian markets, with employment data due early in the Sydney day.
UK markets will also garner strong attention at the London open, with GDP data scheduled for release. This follows yesterday’s weaker-than-expected CPI number. Expectations are for month-on-month GDP data to show a 0.2% increase, and any deviation from that could trigger further moves for the pound.
More U.S. data is due tonight, including Retail Sales, weekly Unemployment Claims, and the Philly Fed Manufacturing Index. These will all drop simultaneously early in the New York session, with investors anticipating more volatility across markets.
