Dow Jones Forecast: DJIA jumps as core CPI cools & banks earnings roll in

US futures

Dow future 1.47% at 43163

S&P futures 1.44% at 5926

Nasdaq futures 1.63% at 21100

In Europe

FTSE -0.05% at 8220

Dax 0.81% at 20300

US CPI rose 2.5% YoY in December
Core CPI unexpectedly eased to 3.2%
Goldman Sachs, JP Morgan post strong Q4 profits
Oil rises after losses yesterday

Core CPI is cooler than forecast

U.S. stocks are surging higher following cooling US inflation data and after banks kick off earnings season on the front foot.

US CPI rose 2.9% YoY in December, in line with forecasts and up from 2.7% in November. On a monthly basis, CPI rose 0.4%, up from 0.3%. However, core CPI eased unexpectedly to 3.2% from 3.3%. On a monthly basis, core CPI eased to 0.2%. This marks the first cooling in core CPI for 6 months.

The core gauge is considered a better indicator of underlying inflation. Although headline inflation rose, 40% of the gain was attributed to energy.

While CPI easing is good news for the Federal Reserve after months of elevated prints, one reading doesn’t mark a new trend. The Fed will want to see several more subdued core inflation readings before being convinced that the disinflation trajectory is back on track. Given the data and the strength in the labour market, it is too soon for rate-cut bets to bounce back. Inflation is still considerably above the Fed’s 2% target level at the end of this month.

The Fed is widely expected to leave rates unchanged at this month's meeting. The market doesn’t see another rate cut later in the year.

Following the report, treasury yields have declined, and stocks are jumping higher, with the Dow adding over 500 points. Meanwhile the USD has fallen over 0.5%.

This is the final inflation reading under the Biden administration. Trump takes office next week and is expected to implement policies such as tax cuts and trade tariffs which will add inflationary pressures.

Corporate news

Goldman Sachs is set to open higher after the investment bank's profits more than doubled in Q4. The bank posted EPS of 11.95 versus 8.22 estimated revenue of 13.87 billion versus 12.39 billion estimated. Revenues jumped 23% to 13.87 billion, boosted by higher equities fixed income trading and rising investment banking results.

JP Morgan traded 0.4% higher premarket after posting record profits, as did some traders benefited from the rebounding market in Q4. Profits rose 50% to $14 billion as noninterest expenses fell 7%.

Wells Fargo shares jumped pre-open after stronger-than-expected earnings and solid guidance on net interest income for 2025. EPS was $1.42, ahead of the expected $1.35.

1% higher, recovering from yesterday's losses despite reports the EV manufacturer plans to temporarily suspend sections of its Shanghai factory line producing the refreshed model Y sports utility vehicle for the Chinese New Year.

Dow Jones forecast – technical analysis.

The Dow Jones has recovered from the 41,750 January low rising above the 100 SMA to test 43,000 resistance. This combined with the MACD bullish crossover keeps buyers hopeful of further upside. As rise above 43,000 open the door to 43,400 the late December high. Should buyers retake this level it creates a higher high. Support can be seen at 42,250 ahead of the 41,750 support zone. A break below here creates a lower low.

FX markets – USD falls, GBP/USD falls

The USD is falling after the cooler core CPI data pulls treasury yields lower as inflationary worries ease slightly, at least for now.

EUR/USD is rising on USD weakness despite weaker-than-expected industrial production data and dovish ECB commentary. Rising concerns over Eurozone growth and price pressures under control point to more rate cuts from the ECB.

GBP/USD is rising amid USD weakness and after UK CPI was cooler than expected, easing to 2.5% YoY in December, down from 2.6% and below forecasts of 2.7%. Services inflation cooled to 4.4% from 5%, which the BoE will welcome. Rate cut expectations rose by 12 basis points to 49 bps this year.

Oil rises with Russian oil sanctions in focus

Oil prices are rebounding after falling over 1% in the previous session as the focus remains on Russian oil sanctions, although gains could be limited by the lack of clarity surrounding their impact. Stockpile data is also due later.

According to the EIA’s latest monthly report, Russian oil sanctions could disrupt supply and distribution significantly. The report released yesterday also highlighted the uncertainty surrounding the full impact of the sanctions on the oil market.

However, the EIA lowered its demand outlook for 2025 to 104.1 million barrels per day and predicted that the WTI price will average $70.00 a barrel in 2025 and $62 in 2026.

Attention now turns to the EIA stockpile reports, which come after API data yesterday showed that crude stock fell by 2.6 million barrels last week, while gasoline inventories rose by 5.5 million barrels.

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