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Investors Are Waiting For US Inflation Data. Analysts Believe That Consumer Prices Will Reach 6.9-7% In Annual Terms

The US stock indices were mostly trading negative yesterday. The Dow Jones Industrial Average (US30) remains at the same level by the end of the day. The S&P 500 (US500) decreased by 0.72%, and the Nasdaq Technology Index (US100) lost 1.71%. Investors were evaluating the latest US labor market statistics. The number of new jobless claims in the US was 184,000, while analysts expected 220,000. The last time, such a figure was in 1969. Today the inflation data will be published in the United States. Analysts expect consumer prices to rise to 6.9-7% in annual terms. Rising inflation tends to cause the national currency to rise, anticipating that the central bank will tighten monetary policy. And often the stock markets react in the opposite way. It should also be noted that 2 important events will take place next week.

On Wednesday, December 15, the Fed will hold a meeting where policy makers may announce that they will accelerate QE cuts, especially if inflation data today is worse than expected. The second big day is Friday, December 17, when both the futures contracts and the quarterly options contracts are set to expire. It is also known as “Witch Friday.” Often, asset movements are hard to predict during this period because investors and hedge-funds close their positions on “old” contracts and reopen them on “new” ones.

The world’s central banks can no longer afford to continue soft monetary policy and keep rates low, Gita Gopinath, senior economist at the International Monetary Fund, said Thursday.

European stock indexes followed the downward trend of US indices yesterday. Germany’s DAX (DE30) decreased 0.4%, Britain’s FTSE 100 (UK100) was down 0.3%, France’s CAC 40 (FR40) lost 0.2% and Spain’s IBEX 35 (ES35) fell 0.9%. Germany’s annual inflation accelerated to 5.2% in November, the highest since 1992. The question is what level of inflation is acceptable to the ECB? The 2% technical target has long been passed, but the ECB is still not going to do anything until March 2022. In Europe, there have already been various articles and headlines criticizing the ECB and, in particular, Christine Lagarde, who wears expensive clothes and doesn’t worry about high inflation.

The oil price has stabilized around $70-71 per barrel of WTI. The easing of concerns about the Omicron coronavirus variant on global growth and fuel demand allowed oil prices to show their biggest weekly gain since August. But oil prices are still under pressure due to a sharp drop in air traffic in Europe and China. Investors will keep a close eye on the US inflation data today. Rising inflation may lead to an increase in the dollar index. Usually, oil prices decrease if the dollar index starts rising.

Gold prices have been drifting for weeks. On the one hand, many investors have been buying gold to protect against inflation. On the other hand, if the QE program is cut, gold prices will fall because of rising government bond yields, to which gold and silver are inversely correlated. That’s why gold is traded in a wide flat with no clear dynamics.

Asian stock indices are also decreasing amid falling the US and European indices and on the news about China Evergrande default. The bankruptcy of such a company is comparable to the bankruptcy of Lehman Brothers in 2008, which eventually led to the global financial crisis. Analysts are confident that Evergrande is only part of China’s problem. China’s total debt to GDP is well over 320%, with a credit imbalance of more than $52.6 trillion in bank assets. In today’s trading, Hong Kong’s Hang Seng Index (HK50) decreased by 1.34%. Japan’s Nikkei 225 Index (JP225) lost 1.00%, and Australia’s S&P/ASX 200 Index (AU200) decreased by 0.42%.

Main market quotes:

  • S&P 500 (F) (US500) 4,667.45 −33.76 (−0.72%)
  • Dow Jones (US30) 35,754.69 −0.059 (−0.00016%)
  • DAX (DE40) 15,639.26 −47.83 (−0.30%)
  • FTSE 100 (UK100) 7,321.26 −15.79 (−0.22%)
  • USD Index 96.24 +0.35 (+0.36%)

Important events for today:

  • Australia RBA Governor Lowe Speaks at 00:00 (GMT+2);
  • Japan Producer Price Index (m/m) at 01:50 (GMT+2);
  • UK GDP (q/q) at 09:00 (GMT+2)
  • UK Industrial Production (m/m) at 09:00 (GMT+2);
  • UK Manufacturing Production (m/m) at 09:00 (GMT+2);
  • Germany Consumer Price Index (m/m) at 09:00 (GMT+2);
  • ECB President Lagarde’s Speech at 11:05 (GMT+2);
  • US Consumer Price Index (m/m) at 15:30 (GMT+2);
  • US Michigan Consumer Sentiment (m/m) at 17:00 (GMT+2).


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