Consolidation underway

The US indices gained on Wednesday, but the gains were more contained compared to the prior sessions, as the European indices posted losses. The S&P500 added 0.30% and the Dow was up 0.10%. Nasdaq led gains thanks to the rally in Apple (+2.28%).

European indices are set to open slightly higher. 

Small gains are good news as they show that a consolidation is underway. The easing volatility is a sign that the gains are more sustainable than what they appeared to be a couple of sessions ago.

Of course, that does not mean that tomorrow’s US inflation data will be piece of cake, but a part of the risk of a bad surprise is probably digested, as the expectation that the Federal Reserve (Fed) will taper quickly to fight back the rising price pressures in the US is broadly priced in.  

Does that mean that we will still see the Santa rally? It’s better to wait until the US inflation data is announced before uncorking the champagne. The latest data showed that inflation in China hit a 15-month high, while the producer prices eased from a 26-year high. Cool down in Chinese factory gate prices is good news, but it may not prevent the US CPI from advancing to the strong 6.7% level expected by analysts in November data.  

Newer than Omicron

Worries that omicron will cause trouble are waning, but a new strain is found in Australia, and it is harder to detect with a PCR test.  

The latter news call for caution with the airline and travel stocks, and not only because of the new strains of coronavirus weigh on the investor mood, but also because the fuel prices are under a decent positive pressure and the airline companies had already warned that the higher energy prices would eat into their profits. Add to that the fact that they will make less money because of the travel restrictions in play, the risks are clear. 

Speaking of energy prices, US crude continues pushing higher, and even yesterday’s EIA data, which showed that the US crude inventories fell much less than expected didn’t prevent oil prices from pushing higher. The barrel of US crude is trading just below the $73 mark this morning and we see a clear positive momentum building, which should pave the way for a further rise toward the $74-75 per barrel, (100-DMA and the prior support), then toward the $78pb (50-DMA). The persistence in the energy price rally is another headache for inflation of course, and higher they go, more hawkish I get in my expectation of what the Fed will be doing next!