* In December, the US CPI rose 7.0% year-on-year, and the three major stock indexes closed higher across the board;
* The probability of a rate hike in March rose to nearly 80%, Fed Bullard: four rate hikes this year;
*International oil prices rose to a two-month high.
U.S. stocks continued their rally on Wednesday, with U.S. inflation reaching its highest level since 1982 in December, in line with market expectations. As of the close, the Dow was up 38.30 points, or 0.11 percent, at 36,290.32 points; the Nasdaq was up 0.23 percent at 15,188.39; and the S&P 500 was up 0.28 percent at 4,728.35.
U.S. inflation has entered the 7.0 era, hitting a nearly 40-year high
According to the Department of Labor's Bureau of Labor Statistics, the U.S. Consumer Price Index (CPI) rose 7 percent year-over-year in December to its highest since June 1982, the third consecutive month of inflation to exceed 6 percent. For the month, it rose 0.5% month-on-month. Core CPI after food and energy removal rose 5.5 percent year-over-year, the highest since February 1991. U.S. CPI rose 6.8% year-over-year and 0.8% month-on-month in November.
Sarah House, an economist at Wells Fargo, said: "CPI prices continue to rise at a frightening rate, underscoring the continued strength of inflation. If the CPI continues to remain around 7% as expected ahead of the Fed's March monetary policy meeting, it will be difficult for the Fed to stand idly by. ”
By item, housing costs, which account for nearly a third of total costs, rose 0.4 percent month-on-month and 4.1 percent for the full year, the fastest increase since February 2007. Used car prices continued to rise 3.5 percent in December, up 37.3 percent from a year earlier, as supply chains constrained the production of new cars.
In contrast, international oil prices fell back, with energy prices down 0.4% month-on-month, fuel oil down 2.4% and gasoline down 0.5%. Still, over the past 12 months, energy prices have risen by 29.3 percent, with gasoline prices up 49.6 percent.
Luke Tilley, chief economist at the Wilmington Trust, expects inflation to peak sometime in December or the first quarter and slow down in 2022. Given the retracement of stimulus measures, prices will rise slower in 2022 than in 2021. With slower spending, supply chain challenges cannot be fully resolved, but the peak of supply chain problems has passed.
Previously, the Fed attributed rising inflationary pressures to labor shortages and supply chain bottlenecks caused by the pandemic. There are signs that supply bottlenecks are starting to ease, with a survey by the Institute for Supply Management last week showing manufacturers reporting an improvement in December deliveries, but a new outbreak could lead to a slow process of supply chain normalization.
RBC Capital Markets expects inflation to continue to accelerate until early 2022, after which it stabilizes and slows from the second quarter. "But the Fed may feel huge price pressure and even be forced to start a rate hike cycle at its March meeting." The report said.
The march rate hike is expected to rise to nearly 80%.Recently, a number of Fed officials have issued a tough stance on the normalization of monetary policy. On Wednesday, Hawkish Commissioner and St. Louis Fed Fed President James Bullard raised his rate hike forecast, saying in an interview with the media that there will be four rate hikes this year, "In fact, I now think we should probably have four rate hikes in 2022, and the Federal Open Market Committee (FOMC) is likely to start raising rates in March with U.S. inflation still on the high side." He said.
Fed Chairman Jerome Powell said at the hearing on Tuesday that high inflation in the United States shows that the economy no longer needs a highly accommodative policy. High inflation is a serious threat to full employment. If inflation persists longer, which means more entrenched risks, the Fed's policy will respond and be willing to adjust it flexibly. Powell did not say anything further about rate hikes, but reiterated that later this year could drive balance sheet reduction.
According to the CME FedWatch tool, the probability of a 25 basis point rate hike by the Fed in March hovers around 79%, while traders also continue to consider the possibility of raising rates more than four times this year.
Kent Engelke, chief economic strategist at Capitol Securities Management, said the market was showing signs of relief as inflationary pressures did not exceed expectations. "The next test now is whether inflationary pressures will ease somewhat. I'm sure we will, we will still have above-trend growth and above-trend inflation, and such a combination could re-trigger a sharp shift in investors toward value stocks and away from growth stocks. He said.
Medium- and long-term bond yields, which soared earlier at the start of the week, have stabilized, with benchmark 10-year Treasury yields dipping as low as 1.71 percent this session after breaking through the 1.8 percent level earlier this week. The 2-year Treasury yield, which is closely tied to interest rate expectations, oscillated upwards, hitting a two-year high of 0.923%.
Concerns about runaway prices and the Fed's reaction pushed U.S. Treasury yields higher, and Dow technology and growth stocks were hit hard at the start of the year. Randy Frederick, managing director of Trading and Derivatives at Charles Schwab, said: "The entire tech industry has suffered a considerable blow. The trend towards value-based assets is clear, in line with concerns about higher interest rates. With the NASDAQ stopping from the 200-day moving average, this is the beginning of a technical rally. ”
In terms of individual stocks, the strong banking sector this year rose and fell, with JPMorgan Chase and Wells Fargo up 0.6%, Citi up 0.3%, Bank of America down 0.7%, and Goldman Sachs down 3.2%. On Friday, Fuguo and Citi will release their results, officially kicking off the earnings season.
Bojian Biogen closed down 6.7 percent after news that Medicare would only reimburse patients with early symptoms who participated in the company's clinical trial of Aduhelm, the Alzheimer's drug.
Boeing rose 0.7 percent, and the company's latest delivery figures were in line with expectations, delivering a total of 340 aircraft to customers in 2021, up from 157 in 2020.
Tech stocks diverged, Google rose 1.2 percent, and germany's antitrust agency, the Federal Cartel Agency, said it had proposed to remove content from its news service News Showcase from search results, with Microsoft up 1.0 percent, Apple up 0.3 percent, Amazon down 0.1 percent and Facebook down 0.3 percent, and a U.S. court on Tuesday rejected the company's request to withdraw the U.S. Federal Trade Commission's (FTC) antitrust lawsuit against it.
In terms of Chinese stocks, Alibaba rose 4.0%, Ctrip rose 3.6%, NetEase rose 2.3%, Baidu rose 1.7%, Pinduoduo rose 0.6%, JD.com fell 0.5%, and the new car-making forces performed well, Weilai Automobile rose 5.5%, Xiaopeng Automobile rose 5.7%, and Ideal Automobile rose 3.2%.
International oil prices rose to a two-month high, supported by tight supply and expectations that the outbreak would not affect the recovery of global demand. The WTI crude near-month contract rose 1.7 percent at $82.64 a barrel and brent crude rose 1.1 percent at $84.67 a barrel. The U.S. Energy Information Administration EIA said U.S. crude inventories fell by 4.553 million barrels last week, with an expected decrease of 1.85 million barrels. Phil Flynn, senior analyst at Price Futures Group, said the market believed demand would be stronger than expected, while OPEC's supply may not grow faster than demand, which is the reason for the rise in oil prices.
As the dollar index fell below the 95 mark for the first time in nearly two months, international gold prices oscillated upwards. The COMEX gold futures contract for February delivery on the New York Mercantile Exchange rose 0.5 percent to $1,827.20 an ounce.