Market Review: December 11, 2024

Economic data from December 11 reflects steady inflation trends, with Core and Headline CPI aligning with expectations. However, the Federal Budget Balance widened significantly, raising concerns about fiscal sustainability. Crude oil inventories showed a moderate drawdown, signaling tightening supply conditions, particularly at the Cushing hub, which could support energy prices. Meanwhile, the 10-Year Note Auction yielded 4.24%, down from the previous 4.35%, reflecting strong demand for long-term debt and easing monetary tightening expectations.

Key Highlights:



Inflation Data (CPI):

• Core CPI (MoM and YoY) met expectations, reflecting stable inflationary pressures.
• Headline CPI rose slightly to 0.30% MoM and 2.70% YoY, signaling modest inflation acceleration.

Crude Oil Inventories:

• Crude oil inventories fell by -1.425M, while Cushing inventories dropped sharply by -1.298M, highlighting supply tightening in energy markets.

10-Year Note Auction:

• The yield on the 10-Year Note declined to 4.24%, reflecting strong demand and signaling a reduction in rate hike expectations.

Federal Budget Balance (Nov):

• The budget deficit widened to -$367.0B, significantly exceeding forecasts, highlighting fiscal challenges.

Impact Analysis:

• USD Impact:
  Steady inflation trends and tighter oil supplies support USD, but a widening budget deficit and lower 10-Year Note yields temper bullish sentiment. The overall USD impact is neutral.

• Gold Impact:
  Gold benefits from a larger budget deficit and lower bond yields, which reduce opportunity costs. However, steady inflation trends limit safe-haven demand. The overall gold outlook is slightly bullish.

• Equities Futures Impact:
  Equities futures are likely to react positively to lower bond yields, supporting growth-sensitive sectors. However, rising cost pressures from higher CPI and concerns over the budget deficit may weigh on sentiment. The overall equities outlook is neutral to slightly bullish.

Today’s data underscores the balancing act faced by markets. Inflation remains steady, but rising fiscal deficits and tightening oil supplies add to concerns about long-term economic stability. Markets are likely to focus on the Fed’s policy response as fiscal and energy dynamics continue to evolve.