“The initial excitement sparked by a cooler-than-anticipated core CPI was short-lived,” said Jose Torres at Interactive Brokers. “The reversal was influenced, in part, by the report’s failure to pull forward the next expected rate reduction from June to April, as fixed-income watchers project Powell’s December cut will be his last at the helm.”
Following JPMorgan’s results Tuesday, earnings from megabank rivals Bank of America Corp., Wells Fargo & Co., Citigroup Inc., Goldman Sachs Group Inc. and Morgan Stanley are slated for Wednesday and Thursday. The group is expected to post its second-highest annual profit ever, boosted by Trump’s policy changes.
Traders also are mindful of the potential for a US Supreme Court ruling Wednesday on tariffs the White House has been enforcing. An adverse ruling could draw a negative market reaction, even as the administration has alternative legal avenues for most of the levies.
Elsewhere, Brent crude notched its biggest four-day gain since June as Trump ramped up rhetoric on Iran, while silver also extended its recent rally to cap its best three-day streak on record.
What Bloomberg Strategists say…
USD/JPY looks likely to climb above 160 and keep going higher. Prime Minister Sanae Takaichi’s reported plan for a snap election was the main initial driver, and now a more hawkish Fed stance on US interest rates and the Iran-fueled increase in oil prices threaten Japan’s currency with a triple whammy.
— Garfield Reynolds, MLIV Asia Team Leader. Click here for the full analysis.
Attention in Asia will once again be on Japan, where Prime Minister Sanae Takaichi’s reported plan for a snap election fueled a rally in stocks while pushing down bonds and driving the yen deeper into the intervention-risk zone. Japanese five-year yields rose to 1.615%, the highest since the tenor’s 2000 debut.
Success at the polls for Takaichi, who ascended to the premiership in October, would provide a mandate for her to continue hawkish diplomacy and pro-stimulus policies.
Back to the US inflation data, the December core CPI, excluding the often volatile food and energy categories, increased 0.2% from November. On an annual basis, it advanced 2.6%, matching a four-year low.
The reading is perhaps a more convincing sign that inflation is on a downward path, since a number of caveats in November’s report contributed to a significant pullback in the annual core CPI.
“Given the quirks of November’s dual-month report, it’s surprising not to see more numerous large month-over-month readjustments,” said Stephen Kates at Bankrate.
“Consumers can breathe a sigh of relief that we didn’t snap back to the 3% annual inflation rate. Although today’s reading doesn’t demonstrate additional progress for inflation, it doesn’t take a step backwards either.”
Stocks
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S&P 500 futures were little changed as of 9:27 a.m. Tokyo time
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Hang Seng futures rose 0.2%
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Japan’s Topix rose 0.5%
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Australia’s S&P/ASX 200 was little changed
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Euro Stoxx 50 futures rose 0.2%
Currencies
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The Bloomberg Dollar Spot Index was little changed
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The euro was little changed at $1.1640
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The Japanese yen was little changed at 159.17 per dollar
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The offshore yuan was little changed at 6.9747 per dollar
Cryptocurrencies
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Bitcoin rose 1.5% to $95,459.32
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Ether rose 3.7% to $3,327.5
Bonds
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The yield on 10-year Treasuries was little changed at 4.18%
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Japan’s 10-year yield advanced two basis points to 2.180%
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Australia’s 10-year yield advanced three basis points to 4.74%
Commodities
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West Texas Intermediate crude was little changed
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Spot gold rose 0.5% to $4,607.42 an ounce
