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HomeWorld NewsInflation in US easing, stocks making big moves

Inflation in US easing, stocks making big moves

10-year bond yields fell, focus on corporate performance

Inflation in US eased in December with core CPI up 0.2%, boosting markets. Stocks rallied as S&P 500 gained 1.5%; 10-year yields fell.

U.S. Economic Data and Inflation

The U.S. economy showed signs of easing inflation pressures as December’s consumer price index (CPI) data revealed core inflation (excluding food and energy) rising by only 0.2%, slowing from a 0.3% increase over the past four months. Annually, core inflation rose 3.2%. This moderation encouraged markets, as the S&P 500 gained 1.5%, the Nasdaq Composite jumped 1.9%, and Treasury yields fell by over 10 basis points on the 10-year note. Swap traders now anticipate a Federal Reserve rate cut by July, earlier than previous expectations of September.

On Wall Street, bank earnings played a crucial role in the market’s optimism. JPMorgan Chase, Wells Fargo, and Citigroup exceeded earnings expectations, contributing to a 562-point rise in the Dow Jones Industrial Average. Despite the good news, the Fed maintained a cautious stance, signaling only two rate cuts for 2025, down from the four projected earlier, while inflation concerns lingered due to robust labor market data.

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European Markets and Inflation

Inflation in Europe presented a mixed picture. France maintained inflation below 2% for the fourth consecutive month, while Spanish inflation came in as forecast. The UK saw relief as December’s consumer price inflation undershot expectations, helping to stabilize the 10-year gilt yield, which pulled back from a 27-year high. Despite this, the Bank of England remains vigilant, balancing fiscal policy pressures with growth priorities. The pound held steady despite tightening sterling money markets, as banks resisted raising mortgage rates to attract borrowers.

The European Central Bank (ECB) is expected to continue easing monetary policy, but uncertainties like potential global trade disruptions and domestic political risks make officials hesitant to commit to specific rate paths. European stocks reflected this cautious optimism, with the STOXX Europe 600 edging higher.

Asian Markets and Inflation

Asian markets showed varied performances. Japan’s yen strengthened against the dollar, fueled by speculation of a potential Bank of Japan rate hike next week. Governor Kazuo Ueda indicated the central bank would evaluate wage growth trends and other factors before deciding on further tightening.

In China, economic activity is subdued ahead of major data releases, including quarterly GDP and December industrial production. The CSI 300 index declined slightly, reflecting concerns over U.S. tariff hikes and technology restrictions. Despite this, Chinese app-related stocks surged, with Xiaohongshu topping U.S. app store charts. Hong Kong’s Hang Seng Index rose 0.3%, while Shanghai Composite dropped 0.4%.

South Korea reported a 3.7% unemployment rate in December, the highest since June 2021, amid political uncertainty. The Kospi ended flat as investors weighed economic and political risks.

Global Energy and Commodities

Oil prices remained steady, with U.S. benchmark crude rising $0.29 to $76.66 per barrel and Brent crude gaining $0.42 to $80.34 per barrel. These modest gains reflect stabilized demand amid global economic concerns.

Corporate Earnings Highlights

U.S. corporate earnings featured strong performances from major banks and financial institutions. Goldman Sachs’ equity trading operations marked a record year, while JPMorgan Chase’s trading revenue hit an all-time high in Q4. Citigroup surpassed earnings forecasts and authorized a $20 billion stock repurchase. BlackRock saw a record $641 billion in client inflows, emphasizing its dominance in active and index funds.

Key Events and Upcoming Data

The week ahead holds critical updates, including China’s GDP, U.S. retail sales, and industrial production figures. The ECB will release its December policy meeting minutes, and prominent earnings reports from Bank of America and Morgan Stanley are expected. Eurozone CPI data and U.S. housing starts will further shape market sentiment as global markets adjust to evolving inflation dynamics and central bank policies.

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