The headline rate of inflation in the United States fell to its lowest level since late 2021 in December, with the consumer price index falling 0.1% from November. As a result, the annual change fell from 7.1% last month to 6.5% this month. The index's monthly decline fell short of analysts' expectations of no change, but the annual rate was in line with forecast. This could be cause for concern of the Feds to help stimulate economic growth while also providing some relief to households facing rising prices. The main item offsetting CPI data were energy (-4.5%) as food (0.3%) and energy services (1.5%) remain inflated.
EQUITY
Following the drop in inflation, the outlook for the stock market is favourable because markets have already factored in an earlier and lower end to the Fed's tightening cycle. The Nasdaq 100, Dow Jones, and S&P 500 futures all increased in tandem as stock futures rose, with the S&P 500 futures contract rising 13.86 points, or 0.3%. The S&P 500 has gained 3.7% overall so far this year. However, as lenders accumulate cash to brace for a slowdown in the economy, it is anticipated that big U.S. banks will report lower fourth-quarter earnings.
GOLD
Gold futures ramped up 1.1% to an eight-month high. The drop in inflation may have contributed to this rise, as investors see it as a positive indication of flat or negative growth in the equity and bond markets.
OIL
Since the end of last year, global crude oil prices have bottomed out on signs that demand in China will rebound sharply this year as the country reopens its economy. Energy stocks rose in tandem with oil prices and expected to continue as market structure points toward bullish trend.
CURRENCY
On the news, the dollar fell to its lowest level in seven months as markets priced in an earlier and lower end to the Fed's tightening cycle. The yield on the benchmark 2-year Treasury note fell 31 basis points to 4.14% since peak of this year. The 10-year note yield, which reflects longer term inflation expectations, fell 42 basis points to 3.45%.
