Yesterday, financial markets seemed to rejoice at the fact that inflation in November in the US was less than expected. Although CPI is still above 7 percent, and was previously a level rather favorable for falling stock prices, the opposite is now true. Why? It seems to be because of, for the time being, a permanent reversal of price growth dynamics.
Following the release of yesterday's data, the dollar index seems to have weakened this morning after falling to around 104 points. Today, investors seem to be awaiting the Federal Reserve's decision on interest rates. The market expects the Fed to scale back its aggressive monetary tightening campaign, but may point to a higher peak for rates in the future, i.e. the hikes may be smaller (interest rate volatility may decrease), but they may last longer and end up not at 4.75-5 percent, but at least at 5-5.25 percent.
As a result, uncertainty may have already set in on Wall Street, where after yesterday's first strong upward reaction, the indexes then turned back. After the euphoria, the market may have moved on to a cool calculation that while the pace of hikes may be slower, in the end it is probably better to have a lower interest rate than a higher one. It indicates the level of the investment risk-free rate, and the higher it is, the lower stock valuations could be.
Source: Conotoxia MT5, US500, Daily
Conference and projections in focus
Today, traders will be closely watching Fed Chairman Jerome Powell's press conference after the decision announcement for clues on future rate hikes. The Fed's latest macroeconomic projections may also provide additional information. Going back to yesterday's data, the annual U.S. inflation rate slowed to 7.1% in November 2022, down from 7.7% in October and below market expectations of 7.3%.
Other central banks on target
Later in the week, we will learn the decisions of equally important central banks. Investors thus may remain cautious in their actions, as the European Central Bank, the Bank of England and the Swiss National Bank would take the stage, with monetary policy decisions to be made as early as Thursday.
Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Conotoxia investment service)
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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