US Weekly Report: What to expect for the US CPI ahead

Rising Treasury yields prompted market participants to seek refuge in value stocks

The start of the week saw US 10-year Treasury yields climb another 2.7 basis points (bp) on Monday, which saw less rate-sensitive value sectors take the lead in market performance. The DJIA closed 0.86% higher, contrasting with a slight dip in the Nasdaq, which ended down 0.38%. From the CNN Fear and Greed Index, investor sentiment is hovering just shy of "extreme fear" territory, with any dip into “extreme fear” typically signalling a near-term market bottom, provided the broader upward trend continues.

With the month progressing, attention may turn to the "January Barometer", the market belief that the stock market's performance in January can indicate how the rest of the year will unfold, though statistical evidence supporting this theory remains mixed. More immediate attention will be on major US banks’ earnings this week, along with key inflation data out of the US, to drive sentiments.

What to expect for US consumer price index (CPI) this week?

With inflation risks back on the radar, the US CPI data will be closely watched this week to offer fresh insights into US pricing pressures. Expectations are for headline inflation to tick slightly higher to 2.8% from the previous 2.7%, while the core reading is likely to remain unchanged at 3.3%. The month-on-month figures may warrant more focus by providing a more timely view of inflation trends. Headline inflation is projected to rise by 0.3%, while core inflation may ease to 0.2% from 0.3% previously.

Should the month-on-month (MoM) core reading aligns with consensus at 0.2%, the risk environment may potentially find room to recover in the near term. A 0.2% monthly increase in core inflation will be consistent with an annualised rate of around 2.4%, signalling progress towards the Federal Reserve (Fed)’s inflation target. The key risk to watch will be any unexpected upside inflation surprise, which could reignite hawkish Fed concerns and push US Treasury yields higher, potentially coming as further trade-off for equities performance.

S&P 500: Attempt to stabilise amid looming CPI risks

The S&P 500 has retraced nearly 5% from its December record high, and while some slight calm has descended overnight, risk appetite remains muted ahead of the upcoming CPI data release. For a more sustained recovery in the index, further signs need to be observed, particularly as the daily relative strength index (RSI) has failed to reclaim its midline on two prior attempts.

A key support confluence at the 5,700 level could potentially invite dip-buying interest, as it aligns with a broad lower channel trendline and its 200-day moving average (MA). The broader upward trend remains intact as long as the 200-day MA holds. Any bounce in the index may face a test of resistance at the 6,071 level, which marked the high reached during the December Federal Open Market Committee (FOMC) meeting. Overcoming the resistance may pave the way towards the 6,420 level next, aligned with a Fibonacci extension level.

Key levels:

• R2: 6,420

• R1: 6,071

• S1: 5,700

• S2: 5,374

US 500 Cash chart

Source: IG charts

Sector performance

Over the past week, US Treasury yields rose by more than 16 bp, with the higher-yield environment seeing less rate-sensitive value sectors take the lead. Energy, materials and healthcare topped the performance table, with energy and materials benefiting from their relative resilience in an inflationary environment. The energy sector was up 3.6% over the past week, aided by a 4% rise in oil prices. In contrast, growth sectors bore the brunt of market unwinding, given their heightened sensitivity to rising bond yields and strong outperformance over the past year, which likely exacerbated profit-taking. The Magnificent Seven stocks experienced broad weakness, with Nvidia down 7.8%, Apple falling 3.7%, and Amazon declining 2.6%. Historically, US 10-year yields above 4.5% have exerted consistent downward pressure on growth stocks, suggesting the need for a turnaround in yields to drive stabilisation in these sectors.

Source: Refinitiv

Source: Refinitiv

Source: Refinitiv
*Note: The data is from 7th – 13th January 2025.

Source: Refinitiv
*Note: The data is from 7th – 13th January 2025.

Source: Refinitiv
*Note: The data is from 7th – 13th January 2025.