Institutional and retail investors alike are keeping a close watch on the upcoming US inflation rate announcement, with expectations set at 0.2% for the Consumer Price Index and 0.3% for Core CPI. However, the spotlight is not solely on inflation as other significant developments in the financial world are capturing attention.
SEC Grants Approval for Bitcoin Spot ETF
The US Securities and Exchange Commission (SEC) recently granted approval for a Bitcoin Spot Exchange-Traded Fund (ETF). This move marks a pivotal moment in the evolution of cryptocurrency into traditional financial markets. Surprisingly, despite the positive news, Bitcoin's price has experienced a dip. This unexpected trend might be attributed to the anticipation surrounding the crucial inflation data, which could potentially influence market sentiment.
JP Morgan has issued a warning, suggesting that the Federal Reserve might be inclined to implement more significant rate cuts than initially indicated. However, the Fed's monetary policy decisions continue to hinge on the outcome of inflation data, underlining the importance of today's announcement.
European stocks are poised to open higher, with anticipation building ahead of the US inflation data release. It's worth noting that the impact of this data extends beyond the borders of the United States and will have repercussions for global assets, not just those directly tied to the US market.
USA100 - NASDAQ Rebounds Strongly
The USA100 index has impressively recovered all its losses from the previous week and is currently trading near its all-time highs from December 2023. Investors are contemplating whether this remarkable ascent will persist. The index has seen five consecutive days of gains, accumulating a 0.40% increase during the Asian trading session.
The future performance of the USA100 is intertwined with three key factors: potential interest rate cuts, the possibility of a soft economic landing, and the demand for artificial intelligence (AI). A continued decline in inflation leading to lower interest rates could attract more investment in the stock market, as it suggests a reduced risk of recession. Furthermore, the recent rally has been fueled by strong corporate earnings and AI-related investments. Sustained momentum will depend on the persistence of these factors.
US inflation in recent months has been primarily driven by Core Services, while other components of the basket have shown signs of stagnation. Investors will be closely monitoring Core CPI figures, hoping for a reading lower than 0.3%, which could bolster enthusiasm for tech investments. JP Morgan has also floated the possibility of more aggressive Federal Reserve rate cuts if the economy shows signs of slowing down. In terms of stock performance, eight out of the top ten weighted stocks in the USA100 index ended higher, with only Broadcom and Tesla experiencing declines. Prominent gainers included Intuitive Surgical, Palo Alto Networks, and Meta. Even influential tech giants like Apple, Microsoft, and Alphabet were trading higher after hours.
Bond Yields and Their Impact on the Market
Bond yields have seen a significant drop, declining by 0.40% and falling below the 4.00% mark. Lower bond yields are traditionally seen as supportive for the stock market, as they lead to lower borrowing costs. Nevertheless, the key determinant of market direction remains the afternoon's inflation data, which will also influence Bitcoin's trajectory despite the recent SEC approval of a Spot ETF. From a technical analysis perspective, various indicators continue to signal a potential price increase.
AUDUSD: Symmetrical Triangle Pattern and CPI Release
The AUDUSD exchange rate is currently trading slightly below the 75-bar Exponential Moving Average and forming a symmetrical triangle pattern. This pattern suggests a neutral stance, indicating that the asset could swing in either direction. A break above 0.67330 could trigger buy signals, while a drop below 0.67000 might lead to sell signals. However, the currency pair's movement will ultimately be contingent on the outcome of today's US CPI release.
Furthermore, November's Australian Monthly Consumer Price Index recorded a 4.3% growth rate, slightly below preliminary estimates of 4.4%. This reflects the slowest expansion since January 2022. Excluding prices for fuel, food, and tourist trips, the data stood at 4.8%, down from 5.1% in October. These statistics align with the consensus that the Reserve Bank of Australia is likely to maintain unchanged interest rates in the near future while continuing its trend of tightening monetary conditions to combat inflationary pressures.
