US open: Stocks jump after inflation cools by more than forecast

US futures

Dow futures +2% at 34704

S&P futures +2.7% at 4100

Nasdaq futures +3.75% at 12160

In Europe

FTSE +0.7% at 7503

Dax +1.8% at 14516

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Inflation & core CPI fall raising dovish Fed hopes

US stocks have shot higher following the release of cooler-than-expected US inflation data which is prompting bets of a less hawkish Federal Reserve.

US CPI fell to 7.1% YoY in November, down from 7.7% YoY in October and below the 7.3% forecast. Core inflation also fell, dropping to 6%, down from 6.3%. On a monthly basis core CPI posted the smallest monthly increase in over a year, rising 0.2%. The data supports expectations that the Federal Reserve will slow the pace of interest rate hikes from the December meeting.

The data comes ahead of tomorrow's Federal Reserve interest rate decision, and the market is now pricing in an 80% probability of 50 basis point rate hike and a 20% probability of a 75-basis point rate hike.

Inflation has now fallen over the past few months from a peak of 9.1%. With several months of falling inflation, it is safe to say a trend is forming. The Fed is expected to continue hiking interest rates in Q1, which, combined with the US economy falling into an expected recession, will help to tame inflation further.  The market even sees the Fed cutting interest rates before the end of next year.

The USD has fallen sharply following the release, while Gold and stocks, particularly the Nasdaq, has jumped higher.

Where next for the S&P500?

The S&P500 Found the port last week at 3910 and is rebounding higher. The RSI is about 15 and supports further upside. Buyers have risen over 4015/25 the 100 & 200 smas and is testing the falling trendline support. A rise above here opens the door to 4100 the December high, and 4160 the September high. On the downside, support can be seen at the 100 & 200 smas ahead of 3910, the December low.

FX markets – USD drops, GBP jumps.

The USD is falling sharply after US inflation data cooled by more than expected, raising the chances of a more dovish Federal Reserve going forwards.

EURUSD is rising owing to a weaker USD after German inflation data confirmed the initial reading of 10.3% and after German ZEW economic sentiment improved by more than expected economic sentiment was -23.3, up from -36.7 and ahead of forecasts of -26.4. German investor morale has proved for the third straight month and is now at the highest level the start of the Ukraine war.

GBP/USD rose to 1.23 in early trade after UK jobs data showed that unemployment ticked higher to 3.7% and wage growth also accelerated. Wages grew at 6.1% up from 5.8% and ahead of forecasts. data piles pressure on the Bank of England to continue hiking interest rates aggressively

GBP/USD  +1.20% at 1.2391

EUR/USD  +1.3% at 1.0650

Oil rises

Oil prices are rising for a third straight day recovering from declines of over $1 earlier in the session.

Oil fell in early trade after China’s leaders delayed a policy meeting amid surging COVID cases which raised concerns of a potential policy U-turn regarding the move away from zero COVID.

The successful reopening of China would be key to boosting oil prices, and according to Bank of America and Goldman Sachs, oil could rise to $90 per barrel should China manage to end its zero-Covid stance.

The price is also finding support from potential lower supply from Russia as a response to the G7 oil and price cap. Expectations are for export volume for Russia's Baltic and Black Sea ports to fall this month.

Attention will now turn 2 the OPEC monthly report and US inflation data as well as the API inventory figures due later today.

WTI crude trades +0.8% at $73.70

Brent trades at +1% at $78.80

Learn more about trading oil here.