US Inflation Shocks Investors But the NASDAQ Attempts to Hold Gains

  • US inflation surprises markets increasing from 3.1% to 3.4% for the first time since August 2023. The Core Consumer Price Index rose 0.3% as expected.
  • US and UK carry out airstrikes in Yemen hitting multiple Houthi targets and boats which are alleged to have been planning to seize commercial shipping boats.
  • Oil ticks higher within the Asian Session after US-UK airstrikes and supply chain disruption fears. Overnight Oil prices rose 1.61% adding more inflation fears.
  • The UK economy grows 0.3% in December 2023 after declining 0.3% the month before.

USA100 – US Inflation Rises from 3.1% to 3.4%

The price of the USA100 fell 1.61% after the US inflation release but rose to close the day at the break-even point. The US inflation release is deemed to be considerably negative for the stock market. However, as the price fell investors took the lower price as an opportunity to enter at a more competitive entry level. This morning the USA100 is more or less unchanged and trading sideways. However, Asian stocks are on the rise this morning which could either indicate a strong investor sentiment globally, or investors turning to Asia which is witnessing lower inflation levels.

Yesterday’s higher inflation is known to be negative as it may result in the Federal Reserve pushing back interest rate cuts. In addition to this, higher inflation is also able to trigger lower consumer demand. However, according to most analysts, inflation is only likely to cause significant harm if it rises for 2 consecutive months. Oil prices are on the rise this morning after US-UK airstrikes which is not welcoming for investors. Lastly, this afternoon’s producer inflation data will also be vital. If producer inflation is also higher than expectations, inflation fears may rise. As a result, the US stock market can potentially decline.

Furthermore, at 12:30 GMT Mr Lane from the European Central Bank will discuss the European monetary policy and thereafter the Fed’s Mr Kashkari will speak regarding the Fed. Both are likely to discuss inflation and what this now means for interest rates. If both turn up the hawkish tone, this can again apply further pressure on stocks across the globe.

Later in the day, large US banks, such as JP Morgan and Bank of America, will release their earnings. Most of these companies are not components of the NASDAQ, however, the quarterly earnings reports can affect investor sentiment and risk appetite.

The price as we enter the European session has declined by 0.18% and the Bollinger band is pointing downwards. In addition to this, bearish crossovers are crossing downwards on the 5-Minute Chart. Both elements form possible sell signals for the day. However, on larger timeframes the price remains considerably high, and the day’s price movement will also be determined by today’s earnings and inflation data.

GBPUSD – UK Economy Grows 0.3% in December

The UK economy confirmed a growth of 0.3% in December after declining by the same amount the month before. This is positive for the Pound and the Bank of England as it provides more leeway to keep rates higher for longer. The Pound is increasing in value against the Dollar since the open of the European Cash Market. However, the Pound is witnessing mixed price movements against other currencies. The US Dollar on the other hand is declining against most competitors.

Nonetheless, this can potentially change after the US session opens and the release of December’s producer inflation data. In addition to this, investors will be watching the Fed’s Mr Kashkari’s comments closely. Mr Kashkari is known to be one of the more hawkish members of the Federal Reserve. Without a doubt Fed members will now comment on inflation and if this changes their outlook on interest rates.

The price of the exchange rate is trading above sentiment lines as well as the neutral zone amongst oscillators. Both indicate a possible upward price movement, however, investors should note economic data such as today’s Producer Price Index can potentially change this.

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Michalis Efthymiou

Market Analyst

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