4.10pm: US markets close higher as inflation cools
US markets closed higher as in line inflation figures gave investors encouragement that pricing pressures are easing, reducing the need for the Federal Reserve to keep hiking rates aggressively.
At the close the Dow Jones Industrial Average was up 216 points, or 0.64%, to 34,189, the S&P 500 was up 13 points, or 0.34%, to 3,983 and the Nasdaq Composite rose for the fifth day in a row, up 69 points, or 0.64%, topping the 11,000 mark at 11,001.
Daniele Antonucci, chief economist and macro strategist at Quintet Private Bank said that “following two significant downside surprises in October and November, the December print was in line with expectations but still represents an important step in unwinding the pandemic-driven surge in inflation.”
ING Economics suggested while US inflation shows price pressures are easing the Federal Reserve will be wary of calling the top in interest rates.
“A 25bp hike in February is likely with a further 25bp in March” it forecast.
Stocks on the move included American Airlines Group Inc. which gained nearly 10% after raising its fourth quarter guidance citing strong demand and high fares. The news gave a push to other airlines with United Airlines up 7.1%, Delta Air Lines Inc. up 3% and Southwest Airlines Coup 2.5%.
But Logitech International SA tumbled 17% after the maker of mice and keyboards missed earnings expectations for the recent quarter and slashed its sales outlook.
12:14pm: Indexes find their footing
At midday, the Dow was up 176 points, 0.5%, to 34,149, the Nasdaq Composite was up 26 points, 0.2%, to 10,958 and the S&P 500 added 8 points, 0.2%, to 3,977.
After an initial swoon in the early hours of the trading, the benchmarks have rallied back into positive territory.
Among those flying higher is American Airlines Group Inc, shares of which jumped 6% after he company said it expects fourth-quarter profits to be between $1.12 and $1.17 per share, well above Street expectations, when it reports next month. Revenue is expected to be more than 15% above the same period of 2021 (pre-pandemic).
Investors are also digesting the December CPI data, which showed a 0.1% decline in prices from November but was 6.5% higher than December 2021.
9.40am: Stocks reverse at the open
After climbing into positive territory in pre-market trading, US stocks opened mixed on Thursday as investors weighed up the latest CPI data for December that showed inflation continues to trend downward but may not be enough to dissuade the Fed from its hawkish position.
Shortly after the market opened, the Dow Jones Industrial Average and S&P 500 were flat at 33,965 points and 3,968 points respectively, while the Nasdaq Composite had shed 13 points or 0.1% at 10,918 points.
BRI Wealth Management chief investment officer Dan Boardman-Weston noted that US inflation was at its lowest level in a year, having cooled over recent months due to falling commodity and goods prices largely linked to recessionary fears.
“Services inflation continues to remain high though and impacts from the Chinese economy re-opening may continue to cause concern over how far inflation will fall,” he said.
“The labour market remains extremely strong in America and the Fed fears that this will continue to stoke inflation, and so are persisting with the tightening cycle, despite economic storm clouds on the horizon.”
Boardman-Weston added that he expected that higher rates will subdue economic activity in 2023 and that this will lead to corporate profits falling and equities remaining under some pressure.
“It’s become clear this year that the Fed is intent on crushing inflation and future expectations of inflation. The higher interest rate environment required to tame inflation comes at the cost of economic growth, which likely comes at the cost of lower stock markets,” he said.
“The adage of ‘Don’t fight the Fed’ has been around for many years and will remain as relevant as ever in 2023.”
8.40am: December CPI report matches expectations
In welcome news for investors, the rate of inflation in the US slowed in December, according to new data from the Bureau of Labor Statistics.
The consumer price index (CPI) for the 12 months to December rose 6.5%, down from 7.1% reported in November, and in line with the consensus analyst expectation.
Inflation declined 0.1% month-over-month in December, after adding 0.1% in the previous month.
The core CPI, which excludes the more volatile food and energy components, rose 5.7% year-over-year and 0.3% month-over-month in December, also on par with expectations.
Titan Asset Management chief investment officer John Leiper said today’s inflation print was good news and marked the sixth consecutive drop in yearly inflation since the June 2022 peak.
But he noted that while the direction of travel was welcome news, it was of insufficient magnitude to sway the Fed from its hawkish stance.
“That’s interesting because market pricing implies a diminutive 30% probability that the Fed hikes by more than a quarter point at its February meeting,” Leiper said.
“That doesn’t gel with Fed committee member comments on front-loading the remaining rate rises and indications that the terminal rate may well settle above 5%.”
The three major US indexes edged higher following the release of the report, with futures for the Dow Jones Industrial Average up 0.4%, the S&P 500 up 0.5% and the Nasdaq adding 0.4% in pre-market trading.
6.30am: Trepidation ahead of CPI release
Wall Street is expected to open flat as the market awaits inflation data, scheduled for release an hour before the open, that will play a key role in the Federal Reserve’s next move on interest rates.
Futures for the Dow Jones Industrial Average (DJIA) rose 0.1% in Thursday pre-market trading, while those for the broader S&P 500 index were unchanged and contracts for the Nasdaq-100 declined 0.1%.
Stocks ended higher on Wednesday as investors took the view that the inflation figures would show a slowdown in the pricing pressures that have forced the Fed to hike interest rates.
At the close the DJIA was up 0.8% at 33,972, the S&P 500 advanced 1.3% to 3,970 and the Nasdaq Composite jumped 1.8% to 10,932.
“This inflation print has been the main topic of conversation all week,” commented Craig Erlam, senior market analyst at OANDA. “The jobs report last Friday changed the dynamic in the markets and ensured that not only was this CPI report going to be important but in all likelihood pivotal ahead of next month's Fed meeting.”
The CPI release is expected to reveal inflation eased further in December, with the headline rate forecast to show annual growth of 6.5% from 7.1% a month earlier. Core CPI, which excludes volatile energy and food prices, may have slowed to 5.7% from 6%.
Following a positive start to the year for equity markets, ING global head of markets Chris Turner said: “A number in line with consensus probably allows the risk rally to continue.”
“Expectations of a Fed easing cycle in the second half of the year, China reopening and lower energy prices are all encouraging this reallocation towards risk,” Turner added.