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U.S. Inflation, Weak U.K. Growth, Russia/Ukraine Dispute – What’s Moving Markets

By Geoffrey Smith and Peter Nurse — The release of the latest U.S. inflation numbers is key, ahead of the Federal Reserve’s policy meeting next week. Both stocks and crude prices are seen edging higher, but activity is seen being relatively limited as traders wait for the key CPI data. Tensions between Russia and Ukraine continue to mount, while growth data out of the U.K. look set to force the Bank of England to stand pat next week. Here’s what you need to know in financial markets on Friday, 10th December.

1 It’s all about inflation

The U.S. will release consumer inflation data for November at 8:30 AM ET (1330 GMT). The numbers are expected to show prices rising at their fastest rate since 1982, with a headline rate of 6.8% and a core rate of 4.9%, both up from October.

The numbers can’t avoid having a big influence on this month’s policy meeting at the Federal Reserve, even though economists both inside and outside the Fed argue that personal consumer expenditures are a better reflection of what’s actually going with the prices that folk pay every week. Given recent rhetoric from Fed Chair Jerome Powell, it may take a big downside surprise to stop the Fed from accelerating the phase-out of its bond purchases.

Doves will be looking for signs that the short-term momentum in prices for traded goods is weakening (gasoline prices, at least, were on the decline during the month). Hawks will be on the lookout for evidence of inflation feeding through into areas such as rents.

In addition to the CPI number, there’s also the final Michigan Consumer Sentiment index for November at 10 AM ET, with its important ‘inflation expectations’ components.

2. Russia-Ukraine tensions rise

Relations between Russia and Ukraine remain fraught after Russia’s Foreign Ministry accused Ukraine on Friday of a “provocation” over an incident involving a Ukrainian warship near the Kerch Strait, the RIA news agency reported.

Talks between the two to agree on a new ceasefire in eastern Ukraine broke down on Thursday, and the conflict threatens to further weaken relations between Washington and Moscow after U.S. President Joe Biden, in a call with Ukrainian President Volodymyr Zelenskiy on Thursday, spoke about the United States’ “unwavering” commitment to Ukraine’s sovereignty and territorial integrity.

Ukraine’s central bank was forced to raise its main interest rate to 9% from 8.5% on Thursday as it warned about the risk of a military conflict with Russia and higher global food and gas prices.

3. Stocks to push higher; Lululemon in the spotlight

U.S. stocks are set to open mostly higher ahead of the inflation numbers, albeit trade seems likely to stay subdued until then.

By 5:55 AM ET (1055 GMT), Dow Jones futures were up 60 points, or 0.2%, while S&P 500 futures and Nasdaq 100 futures were both up 0.3%.

Stocks likely to be in focus later include Lululemon Athletica (NASDAQ:LULU), which rose in after-hours trading on Thursday after strong guidance, and Tesla (NASDAQ:TSLA), which had to withstand fresh selling by CEO Elon Musk on Thursday. Rival EV maker Lucid (NASDAQ:LCID) will also be in the spotlight after it reacted badly to the announcement of a big bond offering on Thursday.

4. U.K. data set to leave BoE on hold

The Bank of England seems set to keep interest rates unchanged next week after fresh data showing the U.K. economy lost momentum already in October, well before the Omicron variant of Covid-19 started to take its toll.

Monthly GDP rose only 0.1% against the backdrop of a brief panic over fuel shortages. It was also the month in which car sales – afflicted by a lack of inventory – fell over 24% on the year. Construction output meanwhile also continued its decline due to higher input prices.

The pound was little changed, the market having already apparently made up its mind about next week’s rate decision in the aftermath of the new Covid-19 guidelines given by the government earlier in the week.

5. Oil on course for hefty weekly gain

Oil prices stabilized Friday, but are still on course for their biggest weekly gain since late August.

The market has been boosted this week by early studies suggesting the current vaccines, admittedly with boosters, will work against the new Omicron variant, resulting in all likelihood in a relatively minor hit to global crude demand.

That said, traders will be keeping a close eye on the Chinese economy, as growth in the world’s biggest oil importer struggles in the face of continued Covid travel restrictions. Additionally, ratings agency Fitch downgraded property developers China Evergrande Group and Kaisa Group, reinforcing fears of a potential slowdown in China’s property sector, as well as the broader economy.

By 5:55 AM ET, U.S. crude futures were up 0.4% at $71.22 a barrel, while Brent futures climbed 0.3% at $74.61 a barrel. Both benchmarks were both on course for gains of about 7% this week, their first weekly gain in seven weeks.

Data detailing the Baker Hughes‘ rig count and CFTC positioning are due later, and round off the week.

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