Profit Taking Weakened Market Sentiment After Inflation Eased In December

Barry Adams
18 Jan, 2023
New York City

Profit taking dictated market sentiment in early trading after the latest inflation report confirmed the slowing inflation trend. 

Benchmark indexes opened higher after the wholesale price index dropped to near a two-year low, but the decline was largely driven by the sharp fall in crude oil and gasoline prices. 

Producer prices for services continued to rise at elevated levels, stoking fears that the higher interests are likely to stay longer despite the recent easing in goods prices. 

 

S&P 500 and Nasdaq Turn Lower 

Stocks opened higher on the hopes of inflation peaking but lost momentum after two hours of trading and benchmark indexes dropped in the negative zone. 

The S&P 500 index decreased 0.8% to  4,003.67 and the Nasdaq Composite index declined 0.7% to 11,015.28. 

 

Energy Prices Advanced On Demand Recovery Hopes 

Energy prices traded higher on the hopes of rising demand from China. 

Business activities and social mobility have picked up after the abrupt ending of zero-covid policy and ahead of the Lunar New Year, but the pace of increase is slow and halting. 

Crude oil rose $1.55 to $81.74 a barrel and natural gas prices declined 15 cents to $3.43 a thermal unit. 

 

Treasury Yields Drop After Weak Inflation Report 

The yields on Treasuries declined following a fall in wholesale inflation, confirming the recent trend in easing price pressures. 

The wholesale price inflation decline was largely driven by the sharp fall in gasoline and crude oil prices in December, however prices for these commodities have risen in the month so far. 

The yield on 2-year Treasury notes fell to 4.09%, 10-year Treasury notes declined to 3.38% and 30-year Treasury bonds dropped to 3.53%. 

 

Wholesale Goods Inflation Slows In December 

Wholesale prices rose at a slower pace in nearly two years, largely on the account of the decline in energy prices, the Labor Department reported Wednesday. 

The producer price index rose 6.2% in December from a year ago and declined 0.5% from the previous month. 

On a monthly basis, the price decline was the largest since April 2020 and the annual pace of inflation was the smallest since March 2021. 

The sharp decline in energy prices by 7.9% on the month dragged the inflation index lower.  Gasoline price index, a subcategory in the energy price index, dropped 13.4%.  

Food price index also decreased 1.2%. 

The core PPI, which excludes food and energy, increased 0.1%. 

Despite the goods price moderation trend in recent months, prices for services and wages have been on the rise. 

Looking ahead, the inflation trend could be reversed since gasoline prices at pump stations and crude oil prices have edged up 8% and 1.8% in the month so far. 

 

European Markers Hold Near Recent 9-month Highs 

The Euro Area inflation eased to 9.2% in December from 10.1% in November as previously estimated, Eurostat said in a report released Wednesday. 

Core inflation, excluding food and energy, accelerated to 5.2% in December from 5.0% in November, keeping the pressure on the European Central Bank to continue with its aggressive rate hikes.  

Automakers advanced after European passenger car sales rose for the fifth month in a row, but the pace of increase slowed in December. 

New car sales in the European Union increased 12.8% in December, slower than 16.3% increase in November. 

The DAX index increased 0.3% to 15,235.70, the CAC-40 index rose 0.4% to 7,106.48 and the FTSE 100 index edged lower 5.85 points to 7,845.77.

The yield on 10-year German Bunds decreased to 2.16%, French bonds declined to 2.65%, UK Gilts dropped to 3.26% and Italian bonds eased to 3.69%. 

The euro advanced to $1.0824, the British pound rose to $1.239 and the Swiss franc edged higher to 91.11 U.S. cents. 

 

Nikkei Soared After BoJ Left Rates Unrevised  

Stocks in Japan soared after the Bank of Japan held its interest rate policy and yield curve control, dashing all hopes of ending its ultra-low rate stance. 

The central bank said it will hold rates at zero percent, with a band of 50 basis points or plus or minus 0.5%, and it will continue to buy unlimited amounts of 10-year Japanese government bonds. 

The central bank will maintain its short term interest rates at -0.1%. 

Last month when the Bank of Japan widened its band to 50 basis points from 25 basis points, investors raised hopes that the bank is finally prepared to lift rates higher and end its decades old ultra-low rate policy. 

The Bank of Japan is likely to leave rates and its short term stance unchanged for the rest of the term of Governor Haruhiko Kuroda term, which ends in April. 

The Nikkei index soared 2.5% to 26,791.12 and the yen was nearly unchanged at 128.32 against the U.S. dollar. 

 

China Indexes Lacked Direction 

Stocks in China lacked direction on the rising worries that the covid-infections are likely to flare-up in rural and urban areas after the ending of holiday period. 

Tech stocks led the gainers in Hong Kong after regulatory crackdown appear to be waning. 

The Shanghai Composite index increased 0.1% to 3,224.41 and the Hang Seng index advanced 0.5% to 21,678.0. 

 

Sensex Extended Gains to Second Day 

Stocks in Mumbai rose for the second day in a row following the market advance in Japan and market sentiment improved on the hopes of stronger-than-anticipated domestic demand.  

The Sensex index advanced 0.6% or 390.02 points and the Nifty index added 0.6% or 112.05 to 18,165.35.