Nasdaq 100 Analysis: Market Awaits Key CPI Data Amid Mixed Indicators

January 15, 2025

The anticipation surrounding the release of the US Consumer Price Index (CPI) has traders on edge as they navigate recent market activities, economic data, and the potential impact of the upcoming figures. US equity index futures have recently shown mixed performance, reflecting varied sentiments among investors. The technology sector witnessed a minor setback, influenced by lighter-than-expected producer pricing data and cautious attitudes from the Federal Open Market Committee (FOMC) members. In the latest session, the S&P 500 rose slightly by 0.11% to 5,842, while the Dow experienced more substantial gains of 0.52% to 42,518. Conversely, the tech-heavy Nasdaq 100 saw a slight decline of 0.13% to 20,757, highlighting the cautious atmosphere in the tech segment.

Producer Prices and Economic Indicators

A pivotal portion of the analysis focuses on the producer prices in the US for December, shedding light on inflation trends and market responses. The y/y headline producer price index (PPI) increased from 3% to 3.3%, alongside a rise in the core PPI (excluding food and energy) from 3.4% to 3.5%. On a m/m basis, the PPI recorded increments of 0.2% for the headline rate and 0% for the core rate. These lighter-than-expected figures provided some relief from pricing pressures and fueled hopes for similar trends in future data, potentially influencing market expectations.

In addition to producer prices, other economic indicators play a crucial role in the broader market sentiment. The article notes that the NFIB’s small business optimism index surpassed forecasts, climbing to 105.1 and reaching its highest level since 2018. This optimism among small businesses contrasts with the decline seen in the RCM/TIPP economic optimism index, which fell to 51.9, below the expected 55, yet still within optimistic territory. Furthermore, the rise in the Treasury budget deficit is a cause for concern, with December’s deficit recorded at -$86.7 billion and the first three months of fiscal 2025 showing a record -$711 billion, marking a nearly 40% increase from the same period the previous year.

Treasury Yields and Market Sentiment

Treasury yields saw a moderate uptick, maintaining a level of apprehension among bond traders due to their high levels. Market pricing, according to CME’s FedWatch tool, implies that the US Federal Reserve (Fed) may implement only one rate cut this year, potentially in June, with a 25 basis point (bp) reduction. This cautious outlook aligns with comments from FOMC members, offering insights into their sentiment and approach towards future policy adjustments.

FOMC member Schmid emphasized that policy rate changes would only be considered in response to a sustained change in the tone of the data, deeming it premature to assess the potential impacts of the new administration’s policies on the economy. Additionally, Williams highlighted issues related to housing affordability within the NY Federal Reserve district, pointing out ongoing challenges faced by the sector. These perspectives reflect an underlying cautious sentiment as the market grapples with mixed indicators and the impending release of CPI data.

Anticipation of CPI Figures

The upcoming CPI figures are set to be a critical test for the market, with expectations pointing to an increase from 2.7% to 2.9% in y/y headline inflation for December. Core inflation is anticipated to remain steady at 3.3%, with monthly gains of 0.3% for the headline rate and 0.2% excluding food and energy. Higher-than-expected CPI figures could spell trouble for both stock and bond markets, particularly given the persistent monthly inflation increments when excluding volatile categories like food and energy.

In addition to the CPI data, market participants are closely watching earnings reports from financial heavyweights such as JPMorgan Chase and Citigroup, which will significantly impact the S&P 500 and Dow 30 indices, albeit having a lesser effect on the Nasdaq 100. Moreover, data releases for weekly mortgage applications, Empire’s manufacturing index, and business inventories are anticipated. Still, the attention remains firmly on the CPI figures as they possess the potential to shape future market movements and sentiment.

Technical Analysis of Nasdaq 100

On the technical front, the Nasdaq 100 has exhibited several challenges, particularly on the daily time frame. Key indicators indicate struggles, with the index testing the lower end of its band and no longer residing above its primary long-term moving averages (MA). The short-term outlook appears less favorable, with the Directional Movement Index (DMI) revealing a negative spread between the -DI and +DI, indicating downward pressure. The Average Directional Movement Index (ADX) signifies a trending scenario, further complicating the short-term perspective.

Contrastingly, the weekly technical overview presents a more bullish outlook historically. Price movements within a wide bull channel offer some optimism, though short-term indicators can shift based on the positioning within this channel. This results in a “bull average” outlook on the weekly chart, contrasting sharply with the “consolidation – volatile” classification on the daily chart, highlighting varying perspectives based on time frames.

Market Sentiment and Strategies

Anticipation for the release of the US Consumer Price Index (CPI) has put traders on edge as they try to navigate recent market activities, assess economic data, and gauge the potential impact of the forthcoming numbers. Recently, US equity index futures have displayed mixed performance, indicating diverse sentiments among investors. The tech sector experienced a slight setback due to producer pricing data that came in lighter than expected and a cautious tone from Federal Open Market Committee (FOMC) members. In the latest trading session, the S&P 500 saw a modest increase of 0.11% to 5,842, while the Dow posted more significant gains of 0.52% to 42,518. Meanwhile, the tech-centric Nasdaq 100 dipped slightly by 0.13% to 20,757, underscoring the careful approach being taken within the technology segment. This varied movement in the markets highlights the prevailing cautious atmosphere as investors await more concrete economic indicators.

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