All US sectors rally ahead of optimistic CPI data
US stocks rose Wednesday as investors grew increasingly confident Thursday’s consumer price index will show cooling inflation and signal to the Federal Reserve that previous interest rate hikes have had their intended impacts. The Dow Jones Industrial Average advanced 0.8 per cent. The S&P 500 gained 1.3 per cent, while the Nasdaq Composite added 1.8 per cent.
Big tech, EVs, REITs, homebuilders, managed care, trucking, building materials, IBs, credit cards, retail/apparel and meme stocks were some of the better performers. Oil services, precious-metals miners, pharma, P&C insurers, tobacco and telecom were among the day's laggards.
Economists polled by the Dow Jones expect the CPI data to show prices cooled by a modest 0.1 per cent in December from the prior month. The forecast still calls for a 6.5 per cent increase from the prior year. Excluding food and energy prices, economists expect the CPI for December will be 0.3 per cent higher than the prior month and 5.7 per cent higher than a year ago.
Bond yields also pulled back as investors prepared for the report.
“It’s really all today about the kind of positioning ahead of CPI,” said Daniel Eye, Chief Investment Officer at Fort Pitt Capital Group. “You’re trying to get in there ahead of a big, big move on the report tomorrow.”
The Nasdaq is on track for its first four-day rally since September. The index has climbed this week as investors pick up beaten-down technology stocks, which they expect to fare better if the Fed eases on its rate-hiking campaign.
All US sectors finished higher overnight, with Real Estate, Consumer Discretionary and Information Technology leading the pack, whilst Consumer Staples and Energy were the worst performers.
After several years of pain in the Biotech space, companies operating within this sector look to be in play in 2023, earlier this week cashed up Johnson & Johnson's CEO said they are looking for opportunities to explore in the sector. Then today, Seagen stated that it is also hunting for deals for emerging oncology drugs and plans to pursue licensing, partnerships or asset acquisitions with biotech startups.
In an interview at the JPMorgan Healthcare Conference, Seagen CEO David Epstein says that the recent downturn in biotech stocks is putting industry companies under pressure to find cash, which could open up more opportunities for Seagen to agree on deals.
In commodity news, the prices of Gold, Copper and Iron Ore have continued to grow over the last few months, relating to the elimination of China’s lockdowns, as well as the expectations that the US Federal Reserve will decrease interest rates.
The prices of gold have risen 15 per cent since November 3 on the back of signs that inflation may be cooling, and the Fed will slow its interest rate hikes. The price is almost at $1,900 per troy ounce, reaching the highest level since April 2022. The rally comes as the market increasingly expects that the Fed will slow the pace of its increases in borrowing costs, as inflation eases off its highs. Higher interest rates make gold, which unlike bonds provides no regular returns, less attractive.
In regard to copper and iron ore, China’s reopening of its vast economy has caused a rally of the two prized commodities, with benchmark copper prices passing $9,000 per tonne on Wednesday for the first time since June. The end of Covid-19 restrictions in China — the world’s largest consumer of commodities — has triggered a jump in a range of metals exposed to the Chinese property sector such as copper, steel and aluminium, although some analysts and traders expect these gains may not be sustained throughout the year.
“We are expecting a rapid rebound in China’s economy,” said Caroline Bain, commodities economist at Capital Economics.
Big bank quarterly results will follow on Friday, kicking off a new earnings season.
The SPI futures are pointing to a rise of 57 points.
Figures around the globe
European markets closed higher. Paris rose 0.8 cent, Frankfurt gained 1.17 per cent and London’s FTSE closed 0.4 per cent higher.
Asian markets closed mixed. Tokyo’s Nikkei gained 1.03 per cent, Hong Kong’s Hang Seng gained 0.49 per cent and China’s Shanghai Composite closed 0.24 per cent lower.
Yesterday, the Australian sharemarket added 0.9 per cent to close at 7,195.34.
Commodities and the dollar
Oil is trading 3.22 per cent higher at US77.54 a barrel.
Gold is trading 0.26 per cent higher at US$1,881.30 an ounce.
Silver is trading 0.53 per cent lower at US$23.54 an ounce.
Copper is trading 2.54 per cent higher at US$418.10 a pound.
Iron ore futures are pointing to a rise of 0.53 per cent.
One Australian dollar is buying 69.07 US cents.
Sources: Bloomberg, FactSet, IRESS, TradingView, UBS, Bourse Data, Trading Economics, CoinMarketCap.
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