US Stocks Pull Back Ahead of Inflation Data – Dow Down 0.8%
US stock indices retreated from record levels yesterday as investors anticipated key inflation data due later today. The Dow fell by 0.86%, the S&P dropped 0.29%, and the Nasdaq edged 0.09% lower. US Treasury yields rose sharply following Monday’s holiday, with the 2-year yield up 8.8 basis points to 4.342% and the benchmark 10-year yield climbing 12.9 basis points to 4.437%. The dollar continued its post-election rally, with the DXY index rising 0.51% to 105.91, a level last seen in May. Oil prices remained steady, with Brent and WTI both adding 0.1% to close at $71.89 and $68.12 respectively. Gold suffered another decline, down 0.7% to finish the New York session at $2,600.93.
Trump Trade Continues to Gain Momentum
Markets have embraced the so-called ‘Trump Trades’ over the past few sessions, as it now appears highly likely that Republicans will control both houses of Congress. Bitcoin surged to new record highs, Treasury yields experienced one of their strongest days this year, and the dollar strengthened, while most other currencies either traded lower or hovered near post-election lows. Traders anticipate a potential pause in the next couple of sessions, with key CPI data expected later today. A stronger-than-expected inflation reading could confirm signs of a robust economy, and coupled with the expected inflationary conditions under a Trump administration, this may drive these movements even further.
US Inflation Expected to Dominate Traders’ Event Calendar
Today’s macroeconomic event calendar will likely be dominated by US CPI data; however, a few other events are scheduled to keep traders engaged throughout the day. In the Asian session, there will be a strong focus on Australian markets with the release of the Wage Price Index data, expected to show a 0.9% quarter-on-quarter increase. Any significant deviation from this could trigger substantial moves in the Australian dollar, which is currently sitting at a key support level. The European session has a relatively light calendar, but traders should brace for potential volatility in the New York session following the CPI data release. Several Federal Reserve members are also scheduled to speak later, which could influence movements in yields and the dollar.
