Morning Wrap: ASX 200 to fall, S&P 500 eases + US inflation accelerates in December

ASX 200 futures are trading 34 points lower, down 0.46% as of 8:20 am AEDT.

The S&P 500 held up relatively well after hotter-than-expected inflation data, US earnings season kicks off tonight with results from major banks, Bitcoin trading volumes surge following the launch of ETFs, Google lays off around a thousand employees, Fed policymakers believe March is too early for rate cuts and Microsoft briefly surpassed Apple as the world's largest publicly listed company.

Let's dive in.

S&P 500 SESSION CHART

S&P 500 tumbled at the open but recovered off worst levels (Source: TradingView)

MARKETS

• S&P 500 finished lower, tumbled as much as -0.92% in early trade but closed well off worst levels

• Bond yields continued to ease despite the hotter-than-expected US inflation print, the US 2-and-10 year hit its least inverted level since early November

• US earnings season kicks off tonight with bank results. The bar remains low but the bigger issue revolves around expectations of ~12% earnings growth in 2024

• Investors trim recession expectations amid global economic resilience (Reuters)

• SEC authorises Bitcoin spot ETFs in landmark move (Reuters)

• Consumer spending pullback in 2024 may dampen IPO interest (Bloomberg)

• JP Morgan says fight against inflation could stall over coming months (CNBC)

• Bitcoin trading volumes surge following launch of ETFs (FT)

STOCKS

• Google lays off hundreds of staff working on its digital assistant, hardware and engineering teams (Bloomberg)

• Netflix surpasses 23m monthly active users for ad-supported subscriptions (Variety)

• Airbus jet order rose 11% in 2023, beating Boeing for a fifth year in a row (Reuters)

• Tesla to boost pay of US production workers amid ongoing pressure from UAW (Reuters)

• Microsoft briefly overtakes Apple in early morning trade as the largest publicly listed company (CNBC)

• Chesapeake Energy agrees to buy Southwestern Energy in US$7.4bn all-share deal (FT)

CENTRAL BANKS

• Cleveland Fed's Mester says March is probably too early for a rate cut (Bloomberg)

• BoK holds rates steady amid sticky inflation, signals pivot to easier policy (Reuters)

• BoE governor Bailey says the UK economy entered the new year in better shape than expected (London Times)

GEOPOLITICS

• Biden to send high level delegation to Taiwan after Saturday's election (FT)

• US companies and Chinese experts engaged in diplomacy on AI safety amid concerns about misinformation (FT)

ECONOMY

• US inflation accelerated in December, fueled by stubborn services (Bloomberg)

• Shelter and healthcare costs lift US consumer inflation in December (Reuters)

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A Hot CPI Print

The December US inflation print was stronger-than-expected, driven by strength across categories such as shelter, recreation and services.

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Here's Bank of America's read on the data:

• "The report still suggests that inflation is cooling as core inflation on a three-month annualised rate edged down a tenth to 3.3% and the year-on-year rate fell below 4.0%."

• "Moreover, some drivers of the strength this month, particuarly used cars, should fade in coming months."

• "Shelter remains a source of sticky inflation, as prices rose 0.5% month-on-month owing to a 0.5% increase in owners' equivalent rents and a 0.4% increase in rents."

• "Inflation for hospital services and professional services was relatively strong. We have seen rapid hiring in the sector, and an aging population could contribute to sustained inflation in this sector."

• "Overall, the report leaves us comfortable with our expectation for the Fed to cut rates by 25 bp in March."

Shelter is keeping core inflation elevated, with prices running at a ~6% annualised pace. While that's down from 8-10% a year ago, it's still well above pre-pandemic levels of around 3.5%.

The data leaves markets in a tricky place. More hawkish Fedspeak is following through after the CPI print. Notably Cleveland Fed's Mester views that March is probably too early for a rate cut as the December data suggests there is more work to do.

While the base case remains six 25 bp cuts by year end, according to Fed fund futures.

ASX corporate actions occurring today:

• Trading ex-div: A2B Australia (A2B) – $0.60

• Dividends paid: None

• Listing: None

Economic calendar (AEDT):

• 11:30 am: Australia Home Loans (Nov)

• 12:30 pm: China Inflation Rate (Dec)

• 12:30 pm: China Producer Price Index (Dec)

• 2:00 pm: China Balance of Trade (Dec)

• 6:00 pm: UK GDP (Nov)

• 12:30 am: US Producer Price Index (Dec)