Stock Market Today
US futures are trading lower while European futures are trading only modestly higher. The major focus among investors and traders is earnings, and more importantly, the message which is being delivered by the companies which have reported so far. The message is that they are still very much facing difficulties in terms of the supply chain, and the inflationary pressure isn’t going anywhere. For instance, yesterday, McDonalds indicated that it will be increasing the prices for some of its products by nearly double purely due to the increased inflationary pressure. Now, if McDonalds doubles the prices, or even increases them by 50%, it will only increase the inflation further and squeeze disposable income for consumers. This would have an influence on economic growth.
Speaking of earnings, we had some smashing numbers from Apple, and its stock price surged in after-market hours. Investors feel much better to know that Apple has reclaimed the No.1 spot in China—a highly important and massive market for Apple. In addition to this, when Tim Cook, the company’s CEO, said that supply chain issues are somewhat improving, investors considered it as music to their ears. His statement about the supply chain issues was perhaps the first positive comment by a CEO of a major company, and traders are optimistic that they will now get to hear better news on the supply side of things.
As for the economic docket, we have a number of economic events which are going to keep traders busy today. For instance, over in Europe, we have the latest Q4 GDP readings from France and Germany. The expectations are we will see a more positive number from France, where the GDP number may show an improvement. The GDP growth is expected to grow 0.5% for the last quarter of 2021. However, it is Germany that matters the most for traders as it is considered the economic engine of the Eurozone. It is expected that the German GDP number will not print a powerful reading. In fact, the expectations are that German economic growth for the last quarter may have shrunk by 0.3% due to the adverse influence of Omicron. If the number matches the expectations, it will mean a significant drop of 1.7% from its previous quarter, which may rattle the confidence among investors and traders in Europe. It may drag the optimism lower.
Later in the day, in the US, we will get to see the latest US inflation and personal spending and income data for December. Traders are hoping that they will get to see a ray of hope, and the inflation number may show signs of a plateau. More recently, we have seen the US PPI number for December showing some improvement, and if this data is of any guide, then we should see some improvement in the Core PCE Price Index number data as well, which is scheduled to come in at 13:30 GMT.
As for the precious metal, it seems like gold traders have taken the FOMC decision to heart, and hence they have no love left for the gold price. The gold price has experienced an intense sell-off for the past two days, and it appears that there is still more to come. The biggest worry for traders now is how much of an interest rate hike they will see coming in March. There is so much noise as some market players believe that the Fed could increase the interest rate by 50 basis points. Looking at the FOMC comments and their decision this week, it is very clear that the Fed has embarked on a journey that shows they will adopt their most hawkish monetary policy in decades. A 50-basis points interest increase isn’t priced into the gold price. Traders are hoping that they will only get to see 25-basis interest rates in March, and there will be only three more interest rate hikes for the rest of this year. The bottom line is that gold’s future price action is very closely tied to what the Fed will do next in terms of its monetary policy.