US Consumer Prices Increase, Denting the Hopes for Immediate Fed Cuts:

Image Source : Krish Capital Pty Ltd

Index Update: The FTSE 100 index, a key benchmark index for the London stock exchange, went up around 0.08% on 12 December 2024. Basic Materials, Real Estate, & HealthCare sector faced a significant decline. Sectors such as Utilities, Energy and Financials witnessed a substantial rise. 

Macro Update:  Economists largely believe that U.S. President-elect Donald Trump's proposed tariffs on UK imports, expected to be less than 10% or potentially none at all, will have minimal impact on the UK economy, contrasting with greater concerns for the EU. This optimism stems from the UK’s trade composition, where only a fifth is with the U.S. and a smaller portion involves goods, which would be the primary target of such tariffs. Meanwhile, Britain's energy regulator Ofgem has suggested reforms to support households with rising energy debts nearing £4 billion, aligning with the Labour government's pledge to enhance living standards and lower domestic energy costs. Additionally, the UK housing market gained momentum in November, as reflected in RICS' house price gauge rising to +25, the highest since September 2022, despite potential economic uncertainty ahead. 

Top Market Movers: Among top gainers on FTSE 100 index, Diageo PLC (LSE: DGE) witnessed a rise of 2.67% followed by Centrica PLC (LSE: CNA) which gained around 2.58%. 

Commodity Update: The U.S. dollar traded in a narrow range on Thursday after reaching a two-week high in the previous session, supported by rising U.S. Treasury yields. Despite this, market players anticipate the Federal Reserve may cut rates next week. November’s consumer price index (CPI) showed a 0.3% increase, the largest rise since April, following four consecutive 0.2% gains. Additional inflation data will be released later with the producer price index (PPI). In commodities, gold fell 0.33% to $2,747.80 per ounce, silver dropped 0.16% to $32.92, and copper gained 0.64% to $9,236.50 per ton. Oil prices were also subdued, with Brent crude falling 0.01% to $73.47 per barrel, as weak demand forecasts and a higher-than-expected rise in U.S. gasoline and distillate inventories offset concerns over new EU sanctions on Russian oil. 

Our Stance: U.S. consumer prices rose in November at the fastest pace in seven months, signaling stalled progress toward the Federal Reserve's 2% inflation target. Despite this, markets expect the Fed to deliver another rate cut next week to bolster a cooling labor market. In response to the inflation data, Wall Street experienced mixed outcomes: the Nasdaq soared past 20,000 points for the first time, driven by a tech rally, while the Dow Jones dipped due to concerns over health insurers' profitability. The Fed's expected rate cut reflects its commitment to supporting economic growth despite persistent inflationary pressures. However, the widening yield gap between the U.S. and China underscores increasing challenges for the yuan, suggesting further financial strain for China's economy. U.S. equity markets remain optimistic, particularly in technology, but sector-specific challenges, like in healthcare, highlight ongoing vulnerabilities. 

FTSE 100 

The FTSE 100 closed at 8,3501.62, gaining 0.26%, with a bullish candlestick pattern signalling positive investor sentiment. The index is trading above both the 21-period and 50-period Simple Moving Averages (SMAs), which now act as strong support levels, suggesting the potential for further upside. The Relative Strength Index (RSI) stands at 55.14, reflecting sustained bullish momentum and the likelihood of continued gains. On the weekly chart, the index closed at 8,308.61, up 0.21%, above the 50-period SMA at 8,047.08, with additional support at 7,932. Immediate resistance is at 8,400, and a breakout above this level could signal a bullish shift. A drop below 8,020 could suggest further downside risk. Investors should keep a close eye on these key support and resistance levels to gauge potential consolidation or upward movement.