The Overnight Report: Inflation Concerns Cooling

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A better-than-feared US inflation update is poised to put a rocket underneath Australian share prices at today’s open with SPI futures suggesting a 1%-plus start is likely.

In addition, JPMorgan, Goldman Sachs, Citigroup and Wells Fargo -the United States’ four largest banks- notched their second-most profitable year in full-year results reported overnight.

World Overnight
SPI Overnight	8307.00	+ 107.00	1.30%
S&P ASX 200	8213.30	– 17.70	– 0.22%
S&P500	5949.91	+ 107.00	1.83%
Nasdaq Comp	19511.23	+ 466.84	2.45%
DJIA	43221.55	+ 703.27	1.65%
S&P500 VIX	16.21	– 2.50	– 13.36%
US 10-year yield	4.65	– 0.14	– 2.82%
USD Index	108.90	– 0.17	– 0.16%
FTSE100	8301.13	+ 99.59	1.21%
DAX30	20574.68	+ 303.35	1.50%

Good morning.

The local calendar includes the release of December labour force data. Economists forecast is for the unemployment rate to rise 0.1 percentage point to 4% month-on-month, while the number of employed people looks set to halve.

Overnight, US December core CPI rose 0.2% m/m, slower than expected, driving bond yields lower and equities higher.

German GDP shrank for a second straight year in 2024.

UK CPI inflation cooled in December, with a larger-than-expected moderation in core and services inflation.

The US 10y Treasury yield retreated -12bp to 4.65%. WTI futures closed up 3.1% to USD80.2/bbl, while gold gained 0.7% to USD2,694.1/oz.

Economists at NAB report the AUD was 0.5% higher at 0.6227, after rising to an intraday high of 0.6247 immediately after the CPI print.

By Quasar Elizundia, Expert Research Strategist at Pepperstone

The December US inflation data presented a mixed picture, but with a nuance that markets have chosen to interpret optimistically.

After a prior week where robust economic data cooled expectations for rate cuts in 2025, the newly released figures offer a welcome relief.

The headline Consumer Price Index (CPI) rose to 2.9% year-over-year, in line with market expectations, marking its third consecutive increase since September.

However, the real surprise came from the core measure, which excludes volatile food and energy prices.

Contrary to expectations of stability, the annual core metric fell to 3.2%. This unexpected decline has infused optimism into markets, creating a “glass half full” sentiment.

This key data, alongside the Producer Price Index (PPI) published the previous day, has triggered a positive movement in financial markets. US equities rose midweek, with the S&P 500 climbing 1.6%.

Meanwhile, Treasury yields fell, and the US dollar depreciated. This market reaction suggests that investors see these numbers as an indication that inflationary pressures might be easing, potentially influencing future decisions by the Federal Reserve (Fed).

The unexpected drop in core inflation is an encouraging sign, suggesting inflationary pressures could be diminishing faster than anticipated.

Coupled with a moderated PPI, it bolsters the narrative that the Fed may have room to adopt a more accommodative stance in its monetary policy moving forward.

It is worth noting that the equity rally has also been driven by strong corporate earnings, particularly in the banking sector.

Results from financial giants like JPMorgan, Wells Fargo, and Goldman Sachs, which exceeded market expectations, have helped boost investor confidence.

While headline inflation remains above the Fed’s 2% target, the moderation in the core measure offers a glimmer of hope.

Markets are now increasingly anticipating the possibility of the Fed resuming rate cuts in the second half of 2025, although the resilient labor market, with 256,000 new jobs created in December, remains a key consideration.

While it’s premature to declare victory, today’s data provides a more optimistic perspective on the inflation trajectory.

It is crucial to closely monitor economic data and market reactions as the inflation situation evolves, particularly under the leadership of the new Donald Trump 2.0 administration.

On the calendar today:

-Australia Dec Unemployment rate

-Japan Dec PPI

-Eurozone Nov Trade Balance

-UK Nov Industrial Prod’n, GDP, Trade Bal

-US Dec Retail sales

-US Jan Phil Fed Business outlook

-Genesis Minerals ((GMD)) market update

-Rio Tinto ((RIO)) 4Q sales & revenue

FNArena’s four-weekly calendar: https://fnarena.com/index.php/financial-news/calendar/

Corporate news in Australia:

-Novonix ((NVX)) raises $32.3m to fund synthetic graphite production in the US

-Nine Entertainment ((NEC)) announces corporate restructuring

-Second suitor for AVJennings ((AVJ))

Spot Metals,Minerals & Energy Futures
Gold (oz)	2720.11	+ 31.02	1.15%
Silver (oz)	31.60	+ 1.07	3.51%
Copper (lb)	4.40	+ 0.05	1.21%
Aluminium (lb)	1.17	+ 0.01	1.12%
Nickel (lb)	7.02	+ 0.02	0.26%
Zinc (lb)	1.29	+ 0.00	0.07%
West Texas Crude	79.23	+ 2.67	3.49%
Brent Crude	82.50	+ 2.36	2.94%
Iron Ore (t)	100.20	+ 0.21	0.21%

By Quasar Elizundia, Expert Research Strategist at Pepperstone

The oil market has experienced a remarkable rebound this week, driven primarily by positive surprises in U.S. inflation data.

This surge has pushed crude prices to levels unseen since August, with U.S. crude encountering resistance at the psychological threshold of US$80 per barrel.

This macroeconomic backdrop, coupled with other key factors, creates an intriguing and dynamic outlook for black gold.

The moderation of core inflation, which rose by 3.2%, below market expectations, has fueled optimism about a potentially less aggressive stance from the Fed.

This perspective is critical, as a less restrictive monetary policy could act as a catalyst for short- and medium-term crude demand. A less aggressive Fed could inject dynamism into the economy, thus boosting energy consumption.

However, it’s not all smooth sailing. The upcoming U.S. presidential inauguration introduces a layer of uncertainty that could heighten volatility in energy markets.

Investors will closely monitor the new administration’s initial economic policies and their potential impact on the oil sector. A crucial political factor might be the increase in U.S. oil production.

On the fundamental side, U.S. crude inventories posted a significant decline of 1.961 million barrels, surpassing forecasts of a 1.6 million barrel drop and marking eight consecutive weeks of decreases.

This reduction indicates strong demand, although it is worth tempering this with the drop in refinery activity, according to EIA data, which could exert downward pressure on short-term demand.

Crude oil imports also show a downward trend compared to the same period last year, adding another layer of complexity.

WTI crude, in particular, has gained over 2.5%, reaching US$80 per barrel, its highest level since August. This rally is supported, beyond inflation surprises, by the recent weakness of the dollar.

The typically inverse correlation between the dollar and oil is evident in this context, where a weaker dollar supports crude demand.

Despite geopolitical uncertainty and technical factors influencing the market, organizations like OPEC remain optimistic about global oil demand, projecting an increase of 1.43 million barrels per day by 2026, reflecting steady growth since 2025.

This forecast, along with the recent stability in the Middle East following the ceasefire between Israel and Hamas, which temporarily alleviates fears of supply disruptions, offers some market stability.

In summary, oil prices are at a crucial juncture, shaped by a complex interplay of macroeconomic, geopolitical, and technical factors.

The moderation of U.S. inflation and a potentially less aggressive Fed offer market momentum, but political uncertainty and mixed supply-and-demand data introduce volatility.

The Australian share market over the past thirty days

Index	15 Jan 2025	Week To Date	Month To Date (Jan)	Quarter To Date (Jan-Mar)	Year To Date (2025)
S&P ASX 200 (ex-div)	8213.30	-0.97%	0.66%	0.66%	0.66%

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
CAR	CAR Group	Downgrade to Hold from Accumulate	Ord Minnett
GYG	Guzman y Gomez	Upgrade to Neutral from Sell	UBS
JIN	Jumbo Interactive	Upgrade to Hold from Lighten	Ord Minnett
NWL	Netwealth Group	Downgrade to Sell from Neutral	Citi
OML	oOh!media	Upgrade to Outperform from Neutral	Macquarie
SCG	Scentre Group	Upgrade to Buy from Neutral	Citi

For more detail go to FNArena’s Australian Broker Call Report, which is updated each morning, Mon-Fri.

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available on the FNArena website.  Click here. (Subscribers can access prices on the website.)

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