The ASX recovered some losses in early trading today, gaining 0.12% or 9.10 points to 7,426.90 by end of day.
The index has been trending down this last week, shedding much of the momentum gained early in the month to sit 2.60% below its 52-week average.
Information Technology, Communication Services and Real Estate held the index in the green, with Sims Limited (+7.36%) and Challenger Limited (+5.97%) leading the way as the top-performing stocks.
Sims shares lifted despite an earnings report revealing an 80% fall in post-tax profit (period on period), a 10% drop in sales revenue and a 66% slash to its interim dividend.
The uplift may instead be due to reports the UBS increased its price target for Sims to $16 yesterday.
Conversely, Challenger’s share price has lifted on positive half-year results, with the company reporting a 5% increase in before-tax net profit and strong demand for its annuity offerings.
Star Entertainment (-13.29%) continued its slide today on a less-than-stellar earnings update yesterday, citing the new NSW casino tax and COVID-19 as the biggest hits to its bottom line.
US markets poised on knife edge
Ever the romantics, the US Bureau of Labor Statistics will release the latest Consumer Price Index data today, February 14, at 13:30 GMT (12:30 am AEDT).
US market surged in anticipation overnight, preparing for one of two scenarios: an extended market rally, or a US dollar tear.
IG Australia market analyst Tony Sycamore drills down into the data and offers a glimpse of what may be to come.
But first – A warning
Every year the US Bureau of Labor Statistics (BLS) recalculates seasonal adjustment factors for the CPI going back five years (year-on-year data, which is not seasonally adjusted, is not revised).
The most recent adjustments were released last week and inflation readings for October and November were revised higher by 0.1%.
To make things more interesting, the BLS recently updated weightings for categories and has made some methodological changes.
The BLS is switching to a one-year lookback window for weighting instead of the former two-year window.
The new weightings will see Owners' Equivalent Rent (OER), where inflation is likely to remain high, will increase by 1.2 percentage points (pp). While the weighting for Used Cars, which has turned deflationary, will decrease by 1.1pp.
This is representative of an increase in the weight of core goods within the basket while core services decreased.
As we know, the price of core services has remained sticky, so the changes should reinforce the lower trajectory of inflation in the medium term.
However, in the short term, the changes bring an X factor to tonight's data that have the potential to challenge the immediate narrative that the disinflationary process is underway.
What is expected?
Headline inflation is expected to rise by 0.5% month-on-month (MoM) due to higher gasoline prices. However, annual headline inflation is expected to fall to 6.2% year-on-year (YoY) from 6.5% YoY, the lowest since October 2021.
Core inflation is expected to rise by 0.4% MoM, which would see the rate of annual inflation fall to 5.5% YoY from 5.7% YoY.
Possible CPI Scenarios and reactions
Presuming headline inflation does come in as expected at 6.2% (0.5% MoM) or lower, it will likely see US equity markets extend their January rally, to test and break recent highs.
However, should the number print at 6.5% or higher, stocks will sag, and the US dollar will rip higher. The market's expectation of the Fed's peak rate will likely be pushed above the 5.2% price for July this year.
S&P 500 technicals
Providing the S&P 500 remains above uptrend support and the 200-day moving average (MA) of 3970/50, we continue to expect the rally from the October lows (which we view as countertrend or corrective) to reach the August 4327 high before fading.
Aware that a sustained close back below the 200-day MA and uptrend support 3970/50 would confirm that the rally from the October lows has been corrective and indicate that the downtrend has resumed.
S&P 500 daily chart. Source: TradingView.
Nasdaq technicals
Providing the Nasdaq remains above the support from the 200-day MA at 12,000, we expect the rally from the October lows to extend past resistance from the recent 12950 high towards the August 13,740 high, before fading.
Aware that a sustained close back below the 200-day MA of about 12,000 would confirm that the rally from the October lows has been corrective and the downtrend has resumed.
Nasdaq daily chart. Source: TradingView.
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