U.S. Weekly Report: U.S. CPI to offer final inflation check ahead of next week's Fed decision

U.S. consumer price index (CPI) to offer final inflation check ahead of next week's Federal Reserve (Fed) decision

The risk rally in Wall Street has cooled into the new week, potentially as extreme bullish positioning called for some near-term profit-taking, with NVIDIA under China’s crosshair offering a reason to de-risk. China’s probe into NVIDIA on anti-monopoly grounds may be somewhat political, especially after the U.S. restricted NVIDIA and other key semiconductor companies from selling their most-advanced artificial intelligence (AI) chips to China. But if anything, the recent move suggests that China is not going down without a fight, with tech tensions likely to be taken up a notch with the upcoming Trump Administration.

What to expect for U.S. CPI this week?

Ahead, the economic calendar will leave U.S. CPI data on watch. Expectations are for U.S. core inflation to remain unchanged at 3.3% year-on-year, which may mark the third straight month in which inflation progress has stalled. Headline inflation is expected to edge slightly higher to 2.7%, up from the 2.6% previously. Month-on-month, the core aspect is expected to increase 0.3%, which could still be argued as being consistent with the Fed’s disinflation narrative.

Thus far, market expectations are firmly priced for further Fed easing next week (85% probability from the rates market). While the U.S. CPI data may not shift expectations for a December rate cut significantly, any persistent inflation read could determine whether we see a "hawkish cut" from policymakers, who may lay the groundwork to keep interest rates on hold in January next year.

Source: Refinitiv

S&P 500: Trading within broad channel pattern

The S&P 500 continues to trade within a broad channel pattern, and while there are some profit-taking to start the new week, it will likely have to take more to reverse the upward trend. In the near term, a secondary upward trendline at the key psychological 6,000 level may be on watch as immediate support to hold. Failing to hold the trendline could pave the way for a deeper retracement towards the 5,861 level next, where its daily Ichimoku Cloud and 100-day moving average (MA) will likely offer a support confluence.

Longer-term price target for the S&P 500 may be at the 6,420 level, where a Fibonacci extension level stands. For now, its daily relative strength index (RSI) has reversed from near-term overbought levels, with any move towards its mid-line at the 50 level potentially on watch to offer a technical reset for another run higher.

Levels:

R2: 6,420
R1: 6,184

S1: 6,000
S2: 5,861

Source: IG charts

Sector performance

Sector performance over the past week reflected a renewed rally in growth stocks, driven by expectations of a 25 basis point (bp) Fed rate cut in December following a 'Goldilocks' U.S. jobs report. However, the gains were not evenly distributed, as value sectors faced headwinds. Energy (-3.9%), utilities (-3.1%), and materials (-3.0%) gave back some of their earlier advances, potentially as a result of a smaller extent of economic surprises lately. The U.S. economic surprise index has retreated slightly from its November high. Market momentum was concentrated in a few heavyweight tech stocks, with Tesla surging 9.2% for the week, Amazon climbing 7.3%, and Microsoft and Meta advancing 3.5% each. Looking ahead, while geopolitical uncertainties and China’s anti-trust scrutiny of NVIDIA have unsettled risk sentiment, it may have to take more to derail the broader uptrend. Expectations of a U.S. economic soft landing, Fed rate easing, and favourable year-end seasonality are likely to keep risk sentiments underpinned.

Source: Refinitiv

Source: Refinitiv

Source: Refinitiv
*Note: The data is from 3rd – 9th December 2024.

Source: Refinitiv
*Note: The data is from 3rd – 9th December 2024.

Source: Refinitiv
*Note: The data is from 3rd – 9th December 2024.