Weekly Focus: S&P 500 Bounce and U.S. Inflation Report

The S&P 500 broad market index is making significant gains this week, with a 1.5% increase. The index experienced a notable rebound on Monday, reaching 4767 points, marking the best recovery since November 8, 2023. The market surged following news that NVidia is preparing to launch a chip specifically focused on the Chinese market in Q2 2024, causing NVidia stocks to rise by 6%.

Federal Reserve (Fed) officials attempted to temper investors' expectations of rapid interest rate cuts after a strong December labor market report in the United States. Various Fed representatives, including Atlanta Fed President Raphael Bostic, Dallas Fed President Lorie Logan, and Fed Governor Michelle Bowman, adjusted their rhetoric to emphasize a commitment to keeping interest rates higher for a longer duration to address inflation concerns. Consequently, bets on a Fed interest rate cut of 0.25% in March decreased to 62.7% from 73.4%, according to the CME FedWatch Tool. The U.S. 10-year Treasuries yields rose to 4.10%, the highest level since December 12.

Investors are closely watching the Consumer Price Index (CPI), expecting a slight increase to 3.2% YoY in December from 3.1% in November, and a 0.2% MoM rise from 0.1% MoM. Core CPI, which excludes volatile food and energy prices, is anticipated to decrease to 3.8% YoY from 4.0% and to 0.2% MoM from 0.3%. The market is eager to assess whether the recent rhetoric from Fed officials will be supported by fresh inflation data.

Despite some signs suggesting a potential correction, U.S. stock indexes, including the S&P 500, continue to rally. While there was a minor pullback at the beginning of 2024, the market sharply recovered on Monday following the NVidia news. The question remains whether the index will continue to set new records or if a correction is looming. The baseline scenario suggests that a correction may start after reaching new highs in January.

The corporate earnings report season is set to begin with the banking sector, presenting an opportunity for the market to either experience further upside or at least maintain a flat trajectory. The S&P 500 index has retraced to 4760-4780 points, and if it surpasses this level, the final upside targets at 4850-4950 points become achievable.

Oil prices retraced to the support at $74.00-76.00 per barrel for Brent crude but quickly recovered above $77.5 per barrel, indicating strong support at this level.

Gold prices, having achieved mid-term upside targets at $2000-2100 per troy ounce, continue to navigate within this range. Although there was a retracement after breaching the resistance at $2100 per ounce, prices are recovering toward the resistance level again. A potential technical weakness period until mid-January might lead gold prices to $1800-1850 per ounce, especially if they dip below $2010 per ounce.

The Greenback strengthened by 2.0% this week and is on the verge of achieving primary correction targets at 1.11500-1.12500 against the Euro. Monitoring potential reversal signals is advisable as the Dollar may strengthen at any moment.