This week, US equity investors are turning their attention towards inflation data as the robust job growth reported on Friday has driven Treasury yields upward. This trend may pose a challenge to equity inflows and high benchmark levels, which are already stretched. The consumer price index (CPI) for December is slated for release on Wednesday, alongside the producer price index (PPI) data expected on Tuesday.
According to Bloomberg's analysis, the CPI is anticipated to show a year-over-year increase to 2.9%, rising from 2.7% in November. However, other significant core and headline metrics are likely to remain stable. A note from Scotiabank commented that if the projections hold true, this CPI report could bolster the prevailing sentiment that the Federal Open Market Committee (FOMC) will maintain its current policy stance for an extended period.
Last week, US equity indexes experienced a decline, primarily due to a significant drop on Friday following the job report. Nonfarm payrolls increased by 256,000, surpassing the expected rise of 165,000 and November’s increase of 212,000. The unemployment rate fell by 10 basis points to 4.1%, contrary to expectations that it would remain unchanged.
Interest-rate-sensitive sectors such as real estate and financials were among the worst performers last week, as the strong jobs report justified the uptick in Treasury yields. On Monday, the US 10-year Treasury yield reached a new 52-week intraday peak of 4.896%, building on its rise from the previous week.
The FedWatch Tool indicated increasing likelihood that the Federal Reserve would retain a hold on its policy during all rate-setting meetings throughout 2025. Investors are also keenly watching the earnings reports from mega-cap companies, including JPMorgan Chase & Co., Bank of America, and Morgan Stanley, set to be released this week.
Additionally, this week is crucial as it precedes President-elect Donald Trump's inauguration. Scotiabank suggested that the potential for Trump to quickly enact executive orders on various policy issues, possibly covering tariffs, will keep investors highly attuned to the news cycle. In related activities, West Texas Intermediate crude oil futures saw a rise of 1.8% to $77.95 per barrel following the announcement of new US sanctions targeting Russia’s energy sector. Moreover, the broader market reflects ongoing concerns with the $US30 and $US500 indexes also feeling the impact of rising costs and market volatility..