Nasdaq – As good a US inflation report as we could have realistically hoped for

• US inflation falls faster than expected; CPI 3% (YoY), Core CPI 4.8% (YoY)
• July Fed hike still highly likely despite inflation drop
• Nasdaq hits 18-month high after the data

Financial markets are buzzing at the US open on Wednesday, with investors buoyed by a very promising inflation report from the US.

The report not only beat at the headline level but core actually slipped even further, dropping to 4.8% for the first time since October 2021. The monthly data was also extremely encouraging, with headline and core falling to 0.2% which was lower than the consensus forecast in both cases. It really is just what the doctor ordered.

Of course, there’s been plenty of setbacks over the last couple of years so we don’t want to get too carried away with one inflation report but it really is about as good as we could have realistically hoped for.

That said, it’s unlikely to change the outcome of the debate that takes place in two weeks. The Fed is still extremely likely to hike by 25 basis points, rightly or wrongly, as the labor market data on Friday simply wasn’t good enough. In fact, the wages component was quite the opposite and will likely convince the FOMC that one more hike is warranted, which is what markets are still heavily pricing in.

Fed Interest Rate Probability

Source – Refinitiv Eikon

But that may well now be the last and if we can see any further signs of progress over the summer then that will likely end the debate altogether, shifting the conversation from how many more hikes to the timing of the first cut.

Is the NAS100 eyeing the 2021 highs?

The NAS100 has hit a new 18-month high today on the back of the inflation data which may pique the interest of everyone. We’ve heard a lot this year about the rally in tech stocks, with investors excited about the new AI boom, but the prospect of interest rates peaking and the conversation around cuts re-emerging could also generate some enthusiasm.

NAS100 Daily

Source – OANDA on Trading View

It is currently trading within a zone that has been notable as resistance since the start of last year, with the price failing in February and March of 2022 and again in June and July this year. A move above this zone could be a very bullish signal and a sign that the tide has turned for the tech space.

Above here, 16,000 and 16,500-16,700 will be interesting as well, having been significant when it peaked back in 2021. But with so much enthusiasm around AI, if interest rate risks and economic fears do subside, there may be a question of whether those levels could be tested earlier than some even recently assumed.

Of course, these things don’t always move so smoothly and there’s been plenty of setbacks in recent years. A break of the blue trend line could suggest the market has become overbought or such as setback has occurred. But right now, enthusiasm only appears to be building and the stochastic may be saying something similar, having produced some higher highs recently. The MACD still looks less convincing.

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