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February 27, 2024
PI Global Investments
Gold

Gold Price, Nasdaq 100 at Risk of Larger Correction after Hot US CPI Data. Why?


NASDAQ 100, GOLD PRICE FORECAST:

  • Gold and the Nasdaq 100 present an unattractive risk-reward profile at this precise moment following recent U.S. economic data
  • With U.S. inflation running above the 2.0% target and the labor market showcasing exceptional resilience, Fed rhetoric could start shifting in a more hawkish direction in the near term
  • Fedspeak will be key in the near term

Most Read: US Dollar Bid as Sticky CPI Poses Dilemma for Fed, Setups on EUR/USD, GBP/USD

Gold prices and the Nasdaq 100 could be at risk of a larger downward correction following the latest set of consumer price and unemployment claims figures released on Thursday. This means that new all-time highs for the precious metal and the technology index may have to wait a bit longer.

On the inflation front, the December CPI report surprised to the upside, with the all-items index accelerating to 3.4% from 3.1% prior. In terms of labor market data, last week’s applications for jobless benefits sank to the lowest level in three months, indicating that layoffs remain very limited in the economy.

US ECONOMIC DATA

Source: DailyFX Economic Calendar

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With consumer prices comfortably above the Fed’s 2.0% target and the job market showcasing exceptional resilience, the U.S. central bank will be reluctant to cut interest rates sharply in 2024. This could shock markets given current expectations for about 135 basis points of easing for the year.

While Treasury yields moved lower on the day, contrary to intuition, the pullback may not be related to Thursday’s data, but perhaps to safe-haven demand following reports that the U.S. and its allies may conduct airstrikes against Houthi rebels in Yemen.

Geopolitical risks are always a wild card, but this situation should be contained, meaning no escalation into a broader regional conflict in the Middle East. On that note, yields are likely to resume their advance once the dust settles, but to get a better sense of their trajectory, traders should closely follow Fedspeak.

The following chart shows recent inflation trends for both the headline and core indicator.

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Source: BLS

In light of recent events, traders shouldn’t be surprised if Fed rhetoric begins to shift in a more hawkish direction, with policymakers pushing back against a rate cut in March arguing that more evidence on disinflation is needed to pull the trigger. This could be quite bearish for precious metals and tech stocks.

For the reasons outlined before, the risk-reward profile for both gold and the Nasdaq 100 doesn’t look attractive at this precise moment. While the outlook could change with the introduction of new information, traders should exercise caution for now, avoiding blindly chasing suspicious rallies.

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