US stocks are setting higher after a mixed run of price data looks unlikely to change what the Fed will do next week. Stocks end a week down on a positive note as expectations remain elevated for the Fed to cut at a slower pace. Inflation is heading lower, but we won’t know for a few quarters whether further tightening will be required by the Fed. For now, investors seem confident that the Fed will stop tightening once the terminal rate peaks around the 5.00% to 5.25% levels.
A big risk for next year is that many traders still expect the Fed to cut rates at some point in the fourth quarter. If these expectations change, risk appetite could experience significant difficulties.
Wall Street had a somewhat mixed day of economic data. A hot PPI report was then countered by a report from the University of Michigan which showed that inflation expectations were falling rapidly. The producer price index rose 0.3% for the month, which was better than expected, while the core index rose from 0.1% to 0.4%. Vegetable prices soared 38%, while the gasoline index fell 6.0%.
The University of Michigan report showed consumer confidence improving, with current conditions and expectations showing better-than-expected increases. Traders paid close attention to 1-year inflation expectations which fell from 4.9% to 4.6%, the lowest level since September 2021.
Crude prices surged after President Putin said Russia may cut oil production as its response to the G7 price cap on Russian crude. Oil’s bad week is almost over as the gloomy and gloomy global outlook has killed the outlook for crude demand.
The near-term outlook for crude demand has deteriorated significantly as no one knows exactly how badly a recession will hit the US economy. The Covid situation in China also remains a big concern as the end of their Covid zero strategy could cripple their healthcare system. Energy traders will be trading very technically here and will likely look to defend the $70 level for WTI Crude.
Gold prices pared their gains after a hot PPI report. This PPI report ended the decline in Treasury yields, which should cap Gold’s recent rally. Gold could struggle for meaningful moves until we get the latest key inflation data ahead of the Fed meeting.
This producer price report will have many expecting the CPI report to remain stubbornly hot, which could tip the balance for the Fed to tighten further beyond February. If the CPI is hot, you might see a strong case for the Fed to make back-to-back half-point rate hikes before they stop, which might suggest that gold might be making a return. part of the gains he has made over the past month.
Bitcoin isn’t doing much ahead of next week’s FOMC decision and as the crypto market looks to see what kind of legislation will hit the space. Senator Markey suggests that mining companies report emissions and energy source. Using bitcoin still requires a significant amount of energy and it could eventually become a bigger issue next year. Earlier this year, the crypto boom was creating jobs and opportunities and bitcoin mining was given a free pass, but more scrutiny could come for bitcoin as the economy heads into a recession and that the global energy crisis persists.
Bitcoin appears to be stuck around the $17,000 area and this may continue until next week’s FOMC decision. Next week is the last trading week of the year where we will see full participation, which could finally help Bitcoin have a more meaningful move. If Wall Street is confident that the Fed is done hiking after the February rate hike and there is nothing new in crypto, you could see Bitcoin racing for the $18,000 level. If the Fed signals that more work may be needed and the legislation looks crippling for Bitcoin, sellers could quickly emerge and push to retest the November lows.