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Has inflation finally peaked? | CNN Business

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A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber ? You can register here.


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It may be a new year. But for investors, consumers and the Federal Reserve, inflation remains a top economic concern, just as it was in 2022.

With that in mind, Wall Street will be watching closely the December Consumer Price Index data for December which is expected to be released on Thursday. The hope is that the pace of price increases will continue to slow.

Consumer prices rose 7.1% year over year through November. This is still a historically high increase, but it is a notable decline from the peak price increases of 9.1% in June. It was also the smallest gain since the 7% annual jump in prices in December 2021.

The hope is that inflationary pressures will ease even more sharply as the year progresses. It’s probably a pipe dream to expect price increases to fall anytime soon to the 2-3% annual level that the Fed would feel most comfortable with. But as long as the CPI continues to fall, the market is likely to rejoice.

“Inflation will continue to roll. We believe inflation peaked in June,” Nancy Tengler, CEO and chief investment officer at Laffer Tengler Investments, said in a statement.

Tengler added that “the rise and fall of inflation are mostly symmetrical. It took 16 months to peak and we now expect it to take that long to reach a tolerable level.

Any further slowdown in the pace of inflation would be good news for the average American, but also for American businesses. This is because profits are expected to increase as commodity spending declines.

“With a year of higher inflation under their belt, we expect headwinds from inflationary pressures to become tailwinds as businesses begin to see input cost deflation. Margins should hold up better than the overall market expects,” said Brett Ewing, chief market strategist at First Franklin, in a report.

Moreover, lower inflation levels should allow the Fed to continue to slow its pace of raising interest rates. Traders are only hoping for a quarter-point hike from the Fed next month…and are betting that the Fed will eventually stop raising rates later this year.

Growing expectations of a Fed pause have increased the odds that the US economy can avoid a deep and prolonged recession. Many experts still think a brief, shallow downturn is likely. But that will depend on how aggressive the Fed is with rate hikes.

“The Fed could blink and accept a 3% to 4% inflation rate ‘for now,’ in which a soft landing might be possible,” said Bob Doll, chief investment officer of Crossmark Global Investments, in a report.

It would also be good news for people who are still looking to buy a home.

Concerns about rising mortgage rates (along with soaring house prices in many markets) have raised fears of another residential real estate crash like the one in the late 2000s. But if inflationary pressures continue to ease – and the Fed recognizes this by forgoing rate hikes – then the housing market could rebound.

“The mortgage market is already expecting two more rounds of rate hikes (approximately) as inflation eases,” said Phillip Wool, managing director and head of investment solutions at asset management firm Rayliant. , in a report.

“As uncertainty recedes from current highs, the corresponding risk…should dissipate, pushing mortgage rates down and improving affordability slightly,” Wool added, saying “we just don’t see a crash.” in future housing.

Avoiding a worst-case scenario in housing would be particularly good news for banks. Several of the country’s major lenders are expected to release their fourth-quarter results on Friday.

Release date: Results from JPMorgan Chase (JPM), Citigroup (C), Bank of America (BAC), Wells Fargo (WFC) and BNY Mellon. (BK) Investors will be eager to see how these banks’ mortgage businesses hold up in light of last year’s gigantic run-up in rates.

The market will also be listening for any signs of optimism from bank CEOs regarding housing and the broader economy. Grim comments from JPMorgan Chase CEO Jamie Dimon and Goldman Sachs (GS) CEO David Solomon spooked traders last month.

Bank stocks, like most of the rest of the market, performed miserably in 2022. Rising rates weighed on demand for loans. But big banks have also suffered from a slowdown in merger activity and IPOs. The dearth of transactions has led to lower lucrative fees for investment banks.

Volatility on Wall Street has also been a major problem for the asset management units of major financial firms. The owner of iShares ETF BlackRock (BLK), which will also publish its latest figures on Friday, was particularly affected.

BlackRock had more than $10 trillion in assets under management at the end of the fourth quarter of 2021, a record high. Due to last year’s market turmoil, that number fell to less than $8 trillion in the third quarter of 2022.

Given the market rebound in the fourth quarter – the S&P 500 gained 7% in the last three months of the year on the back of a torrid October and November for stocks – Wall Street will be looking to see if more investors have invested money in BlackRock’s passive index funds. end of 2022.

Monday: industrial production in Germany; revenues from Tilray (TLRY), PriceSmart (PSMT) and WD-40 (WDFC)

Tuesday: inflation in Japan; UK retail sales; Bed Bath & Beyond (BBBY) revenue

Wednesday: the World Economic Forum’s annual Global Risks Report; revenue from KB Home (KBH)

Thursday: US CPI; weekly jobless claims in the United States; inflation in China; revenue from Taiwan Semiconductor (TSM) and Tesco (TSCDF)

Friday: consumer sentiment in the U. from Michigan to the United States; China trade data; Germany’s 2022 GDP; UK Monthly GDP; revenues from UnitedHealth (UNH), JPMorgan Chase, Bank of America, Wells Fargo, Citigroup, Delta (DAL), BlackRock and BNY Mellon

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