Caution is the name of the game for smart money today. As it is today that we are going to get the most important economic number that is either going to make or break the current rally for the US stock market. The US CPI number will be released today at 01:30 PM GMT and this economic number will be closely looked at not only by traders in the US but also around the world. This is because the number is going to shape the Fed’s monetary policy, and how international markets will react to its monetary policy as the US is the biggest economy in the world.
According to estimates, economists anticipate that the Consumer Price Index will decrease by 0.1% for the month of December while increasing by 6.5% year-over-year. This compares to a monthly increase of 0.1% in November and an annual rate of 7.1%. The CPI has fallen significantly from its all-time high of 9.1% in June.
Looking at the markets, there is no doubt that investors and traders have started early celebrations, and this is the reason that green is the dominant colour among major US stock indices. For instance, the Nasdaq 100 index, which was the weakest-performing index back in 2022, has logged its first four days of a consecutive rally. This indicates that traders are already certain that inflation is going to move further away from its peak, and the number is going to print such data that it would not force the Fed to increase the interest rate more aggressively.
Some of the Fed members have already started to weigh in on their thoughts ahead of this data. On Wednesday, the President of the Boston Federal Reserve Bank, Susan Collins, said that she is leaning toward a lesser rate rise at the central bank’s meeting later this month than markets may have expected. It Is messages like these which are the most important for markets as they set the trading tone among investors and traders. Collins added that she believes a 25 or 50 basis points interest rate would be appropriate; at this moment, I’d lean this stage to a 25 basis point interest rate hike. However, she safeguarded her comments by saying at the end that everything is really data-dependent. The Boston Fed also said that as we move closer to the point, i.e., the Fed’s target rate of inflation, a slow adjustment in the monetary policy provides the Fed more time to evaluate the incoming data. She believes that there is more flexibility for the Fed if the committee adopts smaller modifications in the policy rate.
The overall argument here is that today’s data is really going to narrate the Fed’s future policy decisions. If the market and Fed think that they are satisfied with the inflation progress, then we are more than likely to hear further dovish comments from the Fed officials, which could flare up the bull rally further. However, if the inflation data disappoints today and the stance changes among the Fed members, then it is more likely that we will hear hawkish commentary from the Fed, and the current may derail together.
The precious metal price action is going to be highly sensitive today as traders are largely focused on the US CPI number. A satisfactory inflation number could really change gears for the bull rally that we are currently experiencing for the shifting rally. A number that satisfies the Fed and the market players today could easily push the yellow to begin its flirting not only with the 1,900 price mark but may push the price above the 2,000 price level as well. However, if we see unsatisfying data, expect a violent price action for the gold price, which means that we could easily see the price re-testing the support of 1,800 today.
Binance is really determined to show itself as the only game in the town. While exchanges like Coinbase are cutting their workforces in line with the industry trend, Binance announced yesterday that it would increase its workforce in 2023 by a decent margin. The jury is still out on Binance with respect to how it deals with the client fund and if the exchange will become the victim of FTX’s domino effect. But for now, the CEO is fighting hard against all the FUD (fear, uncertainty, and doubt) and he is determined to keep the lights on.
As for the cryptos itself, the price action continues to consolidate. The trading volume in the crypto space has fallen to a remedial level. That indicates that traders are not willing to involve unless there is a clear uptrend in place. Overall, traders are optimistic as there are fewer bad players involved in this space than a year ago, and we continue to see the cleansing of bad actors from its space which is certainly a positive factor for the future of this industry.