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CPI Again

Wall Street experienced a correction on Friday with noticeable vigor (S&P500 -1.5%, NDX -1.6%). Employment statistics confirmed the robustness of the American job market, which heightened concerns about a more aggressive Federal Reserve and led to an increase in bond yields (T-Note at 4.76%). The rise in oil prices, following a new set of US sanctions on Russia, did not provide any support. This upward trend is continuing today (WTI up by 2.1% to $78.2 and Brent up by 1.9% to $81.3), contributing to fears of ongoing inflation. This week is particularly significant as the US Consumer Price Index (CPI) will be released next Wednesday. There’s an anticipated increase in the overall rate to +2.9% from +2.7%, while the core rate is expected to hover around +3.3%. The effects of these figures will be binary: a worse-than-expected result could pressure bond yields and stifle stock market growth, while a better result could provide some relief.

This week can be seen as split into two segments. In the first half, the focus will be on the CPI, while the second half will shift to individual company performances as the US earnings season kicks off. The average projected earnings per share (EPS) for the S&P 500 in the fourth quarter is +7.5%, which would elevate the total for 2024 to +10%. Banks are expected to report favorable results (JPMorgan +35.6%, Goldman +50.7%, Wells Fargo +54.6%). TSMC is also set to continue its momentum after reporting strong sales on Friday, likely resulting in solid performance. This should positively impact semiconductors, with an estimated +36.4% EPS growth in the quarter, thus benefiting the tech sector. As a result, the latter part of the week, starting Wednesday, might prove to be more favorable than the first. However, this respite may be short-lived as concerns will arise on Friday regarding potential actions from Trump, who will assume office the following Monday, the 20th, and may start his presidency with inflationary measures.

In the immediate short term, today’s session is likely to see stocks decline. Following Friday's employment data, the apprehension about a potential rebound in US inflation, combined with rising oil prices, makes any alternative outcome quite unexpected.


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