Stocks Surge as Core CPI Comes in Below Expectations

The S&P 500 ($SPX) jumped on Wednesday morning following the release of the CPI report. While headline inflation rose 0.4% in December, exceeding expectations, core inflation increased by only 0.2%, below the anticipated level.

In yesterday’s trading session, Wall Street’s major indexes closed mixed. United Rentals (URI) climbed nearly +6% and was the top percentage gainer on the S&P 500 after acquiring H&E Equipment Services for $3.4 billion in cash. Also, Atlassian (TEAM) advanced more than +4% and was the top percentage gainer on the Nasdaq 100 after it announced price increases for its data center products. In addition, KB Home (KBH) gained over +4% after the homebuilder posted upbeat Q4 results and issued solid FY25 guidance. On the bearish side, Eli Lilly (LLY) slumped more than -6% and was the top percentage loser on the S&P 500 after providing a below-consensus Q4 revenue forecast.

Economic data released on Tuesday showed that the U.S. producer price index for final demand rose +0.2% m/m and +3.3% y/y in December, weaker than expectations of +0.4% m/m and +3.5% y/y. Also, the core PPI, which excludes volatile food and energy costs, was unchanged m/m and rose +3.5% y/y in December, weaker than expectations of +0.3% m/m and +3.8% y/y.

“While the wholesale price data does not necessarily translate directly into consumer price data, it was encouraging to see the PPI Index come in well below expectations,” said Charlie Ripley, senior investment strategist at Allianz Investment Management.

Meanwhile, the fourth-quarter corporate earnings season gets underway, with some of the biggest U.S. banks, including JPMorgan Chase (JPM), Wells Fargo (WFC), Goldman Sachs (GS), and Citigroup (C), slated to report their quarterly results today. According to Bloomberg Intelligence, companies in the S&P 500 are expected to post an average +7.5% increase in quarterly earnings for Q4 compared to the previous year.

“[Today’s] CPI report may be the most important inflation reading in recent memory, as it will fuel the market’s Fed-obsessed sentiment. A strong inflation number adds to this idea of no cuts in 2025, and potentially even a rate hike, while a weak inflation data point may help to calm the market’s Fed fears,” said Chris Brigati at SWBC.

A survey conducted by 22V Research showed that 47% of investors anticipate a “risk-off” market response to the CPI report, 29% believe it will be “risk-on,” and 24% said it will be “mixed/negligible.”

The Empire State Manufacturing Index will be reported today. Economists expect this figure to stand at 2.70 in January, compared to 0.20 in December. 

U.S. Crude Oil Inventories data will be released today as well. Economists estimate this figure to be -3.500M, compared to last week’s value of -0.959M.

In addition, market participants will be looking toward speeches from Richmond Fed President Thomas Barkin, Minneapolis Fed President Neel Kashkari, New York Fed President John Williams, and Chicago Fed President Austan Goolsbee.

Later today, the Fed will release its Beige Book survey of regional business contacts, which provides an update on economic conditions in each of the 12 Fed districts. The Beige Book is published two weeks before each meeting of the policy-setting Federal Open Market Committee.

U.S. rate futures have priced in a 97.3% probability of no rate change and a 2.7% chance of a 25 basis point rate cut at the Fed’s monetary policy committee meeting later this month.

In the bond market, the yield on the benchmark 10-year U.S. Treasury note is at 4.774%, down -0.29%.

The Euro Stoxx 50 Index is up +0.26% this morning as investors digested benign U.K. inflation data and looked ahead to the key U.S. inflation report. Real estate and utilities stocks outperformed on Wednesday. Data from the Office for National Statistics released on Wednesday showed that the British annual inflation rate unexpectedly eased in December, increasing the likelihood that the Bank of England will continue to reduce its key interest rate. Separately, data showed that the German economy contracted by 0.2% last year following a 0.3% decline in 2023, marking the first back-to-back annual contraction since 2003. In addition, Eurostat said that Eurozone monthly industrial production edged up in November, offering a rare glimmer of hope for the struggling sector. Meanwhile, long-dated European government bond yields retreated after U.K. inflation data fueled hopes that price pressures might be beginning to recede. European Central Bank Vice President Luis de Guindos stated on Wednesday that the central bank is growing more confident that inflation in the Eurozone will return to its target, but is also increasingly worried about the growth outlook.

U.K.’s CPI, U.K.’s Core CPI, France’s CPI, Spain’s CPI, and Eurozone’s Industrial Production data were released today.

U.K. December CPI arrived at +0.3% m/m and +2.5% y/y, weaker than expectations of +0.4% m/m and +2.6% y/y.

U.K. December Core CPI came in at +0.3% m/m and +3.2% y/y, weaker than expectations of +0.5% m/m and +3.4% y/y.

The French December CPI stood at +0.2% m/m and +1.3% y/y, in line with expectations.

The Spanish December CPI arrived at +0.5% m/m and +2.8% y/y, compared to expectations of +0.4% m/m and +2.8% y/y.

Eurozone November Industrial Production has been reported at +0.2% m/m and -1.9% y/y, compared to expectations of +0.3% m/m and -1.9% y/y.

Asian stock markets today closed in the red. China’s Shanghai Composite Index (SHCOMP) closed down -0.43% and Japan’s Nikkei 225 Stock Index (NIK) closed down -0.08%.

China’s Shanghai Composite Index closed lower today as cautious sentiment prevailed, with investors awaiting a flurry of economic data from the country later in the week. Tech hardware and pharmaceutical stocks led the declines on Wednesday. The People’s Bank of China on Wednesday pumped nearly a record-high amount of liquidity into the nation’s banking system to help meet demand for cash ahead of the Lunar New Year holidays. The injections show “that the PBOC easing stance has not changed,” said Xiaojia Zhi, an economist at Credit Agricole CIB. Meanwhile, investors are gearing up for a potential cut to lenders’ reserve requirement ratio to help mitigate the expected impacts of U.S. tariffs as Trump returns to office. On the negative side, Bloomberg reported that the U.S. is set to introduce additional regulations to prevent advanced chips produced by Taiwan Semiconductor Manufacturing Co. and other companies from reaching China, highlighting persistent geopolitical tensions. Still, Rick Waters, a former China policy official at the U.S. Department of State, said at a UBS conference that Washington and Beijing are attempting to establish an equilibrium, but there will be significant volatility until it is achieved. In corporate news, China Merchants Bank gained about +2% after reporting a 1.2% year-over-year increase in its 2024 profit. Investor attention is now centered on China’s Q4 GDP data, along with a series of December data releases, such as retail sales and industrial production, scheduled for Friday.

Japan’s Nikkei 225 Stock Index closed slightly lower today, giving up earlier gains as uncertainties about the Bank of Japan’s policy outlook kept investor sentiment subdued. Losses in machinery and pharmaceutical stocks offset gains in financial stocks on Wednesday. A private survey showed on Wednesday that Japanese manufacturers’ sentiment improved in January after a decline last month, driven by better conditions for materials industries. However, manufacturers’ outlook remains cautious due to uncertainty regarding proposed Trump policies. Meanwhile, the yen strengthened against the dollar following comments from Bank of Japan Governor Kazuo Ueda, who stated that the central bank will deliberate on a potential rate hike at next week’s meeting. The governor also expressed growing confidence in wage increases after hearing optimistic opinions at various New Year events and the BOJ’s recent branch managers’ meeting. In other news, Reuters reported that Japan is expected to fall short of meeting its target of running a primary budget surplus by the next fiscal year. In corporate news, Money Forward plunged over -14% after reporting a wider full-year net loss of 6.33 billion yen. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed down -1.73% to 23.88.

Pre-Market U.S. Stock Movers

908 Devices (MASS) surged over +12% in pre-market trading after reporting better-than-expected preliminary Q4 revenue.

SoFi Technologies (SOFI) rose more than +2% in pre-market trading after William Blair initiated coverage of the stock with an Outperform rating.

Adobe (ADBE) gained nearly +1% in pre-market trading after Exane BNP Paribas upgraded the stock to Neutral from Underperform with a $425 price target.

Vericel (VCEL) slid more than -6% in pre-market trading after the company issued below-consensus Q4 revenue guidance.

SentinelOne (S) fell over -1% in pre-market trading after UBS downgraded the stock to Neutral from Buy.

You can see more pre-market stock movers here

Today’s U.S. Earnings Spotlight: Wednesday - January 15th

JPMorgan (JPM), Wells Fargo&Co (WFC), Goldman Sachs (GS), Citigroup (C), Bank of NY Mellon (BK), Synovus (SNV), Home BancShares (HOMB), H B Fuller (FUL), Concentrix (CNXC).