Wall Street up ahead of inflation report

On Wall Street, stocks rose on Monday as investors hoped that new data would show that inflationary pressures in the United States are easing, which could prompt the US central bank to slow the pace of interest rate hikes. The Dow Jones rose by 1.58 percent, to 34,005 points, while the S&P 500 strengthened by 1.43 percent, to 3,990 points, and the Nasdaq index by 1.26 percent, to 11,143 points.

After last week these indexes fell due to the increased risk of recession, on the first day of the new week they recovered some of those losses. That’s thanks to investors’ hopes that a consumer price report due on Tuesday will show that inflationary pressures are easing.

Analysts polled by Reuters estimated that retail price growth slowed to 7.3 percent in November from 7.7 percent a month earlier, and that the core inflation rate slipped to 6.1 percent from 6.3 percent. However, there is a risk that the inflation data will be slightly higher as producer prices rose more than expected in November.

It was this information released on Friday that had the biggest impact on the fall in Wall Street stock prices at the end of last week. Easing inflation, in turn, will allow the Fed to slow the pace of interest rate increases. After a series of interest rate hikes of 0.75 percentage points, the market estimates that the Fed will raise interest rates by 0.50 percentage points at Wednesday’s meeting.

Open questions about the actions of the Fed

But the questions will remain open to what level the Fed will raise interest rates – to 4.75 or 5.00 percent – and how long will they stay at those levels? Currently key interest rates range from 3.75 to 4 percent, which is the highest level since early 2008.

Much depends on how quickly the inflation rate begins to approach the Fed’s target levels. Both due to high inflation and the resulting rise in interest rates, Wall Street is on track for large annual losses.

The S&P 500 is currently down about 16 percent year-to-date and on track for its first annual decline since 2018. And if the S&P 500 stays at these levels for the rest of the year, it will see its biggest annual decline since 2008.

And on the European stock exchanges yesterday, share prices fell. The London FTSE index weakened by 0.41 percent, to 7,445 points, while the Frankfurt DAX slipped by 0.45 percent, to 14,306 points, and the Paris CAC 0.41 percent, to 6,650 points.