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US CPI better than expected; Energy push in 2024-2025

Jobless claims easing, Asia market led by Tokyo and Energy

US CPI 0.3%, core CPI 3.4%, Asia mixed, Wall Street fluctuates, record energy production. Upcoming: Q4 reports, US inflation update

U.S. Economic Overview

In December, U.S. consumer prices went beyond expectations, rising by 0.3%, primarily driven by an uptick in rents. The Consumer Price Index (CPI) saw a 3.4% increase in the 12 months through December, surpassing the November figure of 3.1%. Notably, the cost of shelter played a pivotal role, constituting more than half of the CPI’s monthly increase. Despite a gradual easing from the peak of 9.1% in June 2022, persistently high rents have limited progress toward lower consumer inflation.

CPI figures

Excluding volatile food and energy components, the core CPI rose 0.3% in December, maintaining the 3.9% year-on-year increase. The Federal Reserve, observing improvements in measures for its 2% inflation target, faces decisions on potential interest rate adjustments. The market initially speculated a 69% chance of a rate cut in March, but the resilient labor market, coupled with elevated wage growth, may delay such a move. Some economists now anticipate a rate cut in May or June.

Unemployment claims

While the labor market exhibits gradual easing, with low layoffs and initial unemployment claims falling to 202,000, the economy added 216,000 jobs in November. Despite occasional volatility in claims data at the start of the year, the trend remains within the 194,000-265,000 range, reflecting employers holding onto workers amid challenges in post-pandemic labor markets.

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FED’s Policy

The Federal Reserve, having raised its main interest rate to the highest level since 2001, is contemplating rate cuts to support the economy. Treasury yields, anticipating rate cuts, have remained steady, and the yield on the 10-year Treasury was at 4.02%.

Energy, Q4 reports on the horizon

Upcoming economic events include the U.S. government’s monthly update on consumer-level inflation and S&P 500 companies reporting Q4 2023 results. The oil market remains dynamic, with U.S. crude rising to $72.50, and Brent crude at $77.81.

Energy Production in the USA

Despite concerns about the shale drilling viability, the U.S. Energy Information Administration forecasts record-breaking oil and natural gas production in 2024 and 2025. Average oil production is expected to reach 13.2 million barrels per day in 2024, surpassing the 2023 record of 12.9 million barrels per day. Similarly, natural gas production is set to hit an unprecedented 105 billion cubic feet per day in 2024.

Energy Growth Factors

This robust production contradicts the Biden administration’s policies, which aim for a transition away from the oil and gas industry. The industry attributes the growth to factors predating the current administration. Despite concerns about potential delays in export licenses and a perceived energy crisis due to restrictions on leases, the U.S. continues to play a pivotal role in global energy markets.

Markets in Asia and Oceania

In Asia, Tokyo’s Nikkei 225 drove past 2%, reaching a 34-year high, driven by increased disaster reserves and speculation that the Bank of Japan might delay changes to its monetary policy. In contrast, Hong Kong’s Hang Seng slipped 0.4%, and South Korea’s Kospi dropped 0.7%, with the latter experiencing its highest unemployment rate since January 2022.

Australian numbers

Australia’s S&P/ASX 200 fell 0.7%, triggered by consumer price inflation dropping to a two-year low of 4.3% in November, raising expectations for policy easing measures. The global context impacted by these regional trends is evident in Wall Street’s mixed performance, with the S&P 500 slipping 0.1% and the Dow Jones falling 0.4%.

We will share more important market-moving Forex news as soon as they are available on our Economic Blog