Hot CPI data shakes stocks, gold
January Consumer Price Index (CPI) inflation data has presented an unexpected turn, exceeding forecasts by 0.2%. Headline inflation came in at a persistent 3.1% and core inflation held firm at 3.9% on a year-over-year basis. These figures suggest that inflationary pressures are more tenacious than previously anticipated, potentially altering the course of monetary policy and impacting markets.
The S&P 500 Index (SPX), a barometer for US equities, experienced a sharp reversal from its all-time highs, retreating after surpassing the 5000 mark on February 9th. This pullback reflects the market’s reaction to inflation concerns, which can erode corporate profits and reduce the present value of future earnings. Historically, periods of high inflation have often led to increased market volatility and a reevaluation of asset prices.
Concurrently, gold, a non-interest bearing asset, has seen its prices drop to year-to-date lows near $2000 per ounce following the US inflation data. Traditionally, gold has been viewed as a store of value during times of economic uncertainty, but its recent dip suggests that investors may be looking elsewhere for returns or reassessing the metal’s role in the current economic environment.
US dollar surges off data
US dollar (USD) has exhibited a negative correlation to both gold and US stocks in recent months. This inverse relationship means that historically as the dollar strengthens, both gold and stocks tend to move in the opposite direction. This flock to USD was in part due to shifting expectations of future interest rates – now thinking the Fed will keep rates higher for longer. The dollar’s strength is evident with USD/JPY breaking above 150.00 for the first time since November, marking a year-to-date high. This brings US dollar close to 30-year highs against the Japanese yen.