[Chart courtesy of MarketWatch.com]

1. Moving the markets 

Wall Street shrugged off another inflation report and pushed the major indexes higher, after a sluggish start.

Traders are waiting for the Fed’s decision on monetary policy, which could affect the pace of the economic recovery. The consumer price index, which measures the cost of living, rose 3.1% from a year ago and 0.1% from October. Both figures matched economists’ expectations.

However, the core CPI, which excludes food and energy, edged up 0.2% month over month, as predicted, and stayed at 4% year over year. The Fed will announce its policy stance on Wednesday at 2 p.m. ET.

Most investors expect the Fed to keep interest rates near zero. However, the Fed faces a dilemma. On one hand, financial conditions have eased significantly, suggesting that the Fed’s stimulus is working. On the other hand, the economy has been slowing down, according to the Citi Economic Surprise index, which tracks how data compares to forecasts. Moreover, the Super Core CPI (excluding shelter) rebounded above 4%, indicating persistent inflation pressures.

One bright spot was today’s 30-year bond auction, which sparked a huge buying spree in stocks in the afternoon, ensuring a positive finish. However, short sellers have not given up, but the market has been stuck in a range for most of the month.

Bond yields were mixed, the dollar and gold reacted briefly to the inflation data, and crude oil was the biggest loser, dropping below $69 a barrel.

The Fed is in the spotlight now.

Will Powell stick to his “transitory” inflation story or bow to Wall Street’s pressure?

[Chart courtesy of MarketWatch.com]

1. Moving the markets 

The S&P 500 ended higher on Monday, after a choppy session, as investors waited for the final Federal Reserve meeting of 2023. The big question is: when will the Fed start to lower interest rates?

The Fed is likely to keep the fed funds rate unchanged in the 5.25%-5.5% range. But Chair Jerome Powell may also signal his readiness to fight inflation in his press conference on Wednesday.

Many traders are betting that the Fed will cut rates by 0.25 percentage points in March. But don’t count on it. Higher-than-expected inflation data could spoil the party and delay the rate cuts.

This week, we’ll get a glimpse of the inflation picture, with the consumer price index on Tuesday and the producer price index on Wednesday.

It was a crazy day on Wall Street, with a lot of action in different markets, as Zero Hedge put it:

Bitcoin got slammed, oil prices dropped and bounced, the ‘Magnificent 7’ stocks stumbled, gold prices fell, and natural gas tanked. Bonds were mixed (yields slightly higher) and the dollar rose a bit.

Bitcoin stole the show today, as it faced a wave of selling pressure and a scathing attack from Elizabeth Warren – who blamed it for everything from climate change to inequality.

The short squeeze was on and off again, following last week’s erratic pattern. Since the last FOMC meeting, financial conditions have eased a lot, which makes me wonder if that will affect the Fed’s thinking on interest rates.

Will Powell stand his ground and defy market expectations on Wednesday? Or will he cave in and give the traders what they want?

[Chart courtesy of MarketWatch.com]

1. Moving the markets 

The S&P 500 bounced back from a three-day slump and closed higher on Thursday, as investors awaited the crucial jobs report on Friday. Google-parent Alphabet led the gains with a 5% jump, thanks to its new Gemini AI model that promises to revolutionize search and advertising. Chipmakers Nvidia and AMD also rose by 1% and 5%, respectively, as demand for their products remained strong.

The jobs report is the main event of the week, as it will reveal the health of the labor market amid mixed signals from other data. On Thursday, the weekly jobless claims came in lower than expected and the continuing claims dropped, suggesting that fewer people are losing their jobs. However, this also raised concerns about inflation and the Fed’s tapering plans, pushing the 10-year treasury yield higher.

Investors are hoping for a Goldilocks scenario on Friday, where the jobs report shows a moderate increase in hiring, but not too strong to spook the Fed. Economists forecast that 190,000 jobs were added in November, up from 128,000 in October. A weaker number could ease the pressure on the Fed to hike interest rates sooner, while a stronger number could dampen the market mood.

Meanwhile, the currency market saw some wild swings on Thursday, starting with the Bank of Japan’s hawkish comments that sent the yen soaring against the dollar. The USDJPY pair plunged and briefly flash crashed, as this chart shows. It recovered some of its losses, but still ended the day lower. The Swiss franc also surged to new highs, while the dollar index fell to its lowest level in three weeks.

Other markets were more subdued, with bond yields mixed, gold flat, and oil prices slightly higher. Oil snapped a five-day losing streak but failed to reclaim the $70 mark.

The bright spot of the day was the mortgage market, where rates fell for the sixth consecutive week and hit their lowest level since August.

How long will this last?