Stocks rose sharply amid an unexpected slowdown in US inflation. Oil reached the $80 per barrel

The Dow Jones (US30) rose 1.65% on Wednesday. The S&P 500 Index (US500) gained 1.83%. The Nasdaq Technology Index (US100) jumped 2.31%. The core inflation rate rose for the third consecutive month to 2.9% in line with expectations, but the core rate unexpectedly slowed to 3.2%. The data added confidence that the Fed may continue to cut interest rates this year. In addition, corporate earnings results from major banks boosted investor sentiment. JPMorgan shares rose about 0.4% after beating earnings and revenue estimates and raising its 2025 net interest income outlook. Wells Fargo shares rose more than 3% after reporting higher earnings. Goldman Sachs climbed 4.8% on better-than-expected earnings and revenue, and BlackRock jumped nearly 2.5% as its assets reached a record $11.6 trillion.

The Canadian dollar strengthened to 1.43 per US dollar, hitting a one-month-high, as the US dollar weakened after weaker-than-expected core inflation figures dampened expectations of a prolonged continuation of high interest rates by the Federal Reserve. Meanwhile, rising crude oil prices and Canada’s status as the largest oil exporter to the US, bolstered by new US sanctions against Russian oil, improved the outlook for demand for the loonie.

The Mexican peso strengthened to 20.5 per US dollar, recovering after falling to a March 2022 low, as the US dollar weakened after lower-than-expected core inflation data dampened expectations of a prolonged continuation of high interest rates by the Federal Reserve. In addition, reports that President-elect Donald Trump’s administration may gradually impose tariffs to ease inflationary pressures eased fears of trade disruptions, lending support to the peso.

Equity markets in Europe were mostly up on Wednesday. Germany’s DAX (DE40) rose by 1.50%, France’s CAC 40 (FR40) closed 0.69% higher, Spain’s IBEX 35 (ES35) gained 1.25%, and the UK’s FTSE 100 (UK100) closed positive 1.21%. In France, the annual inflation rate for December 2024 was confirmed at 1.3%, in line with preliminary estimates and unchanged from the previous month. Among individual stocks, financial institutions led the gains, with AXA, BNP Paribas, Credit Agricole and Societe Generale up 1.6-3.1%.

Silver (XAG/USD) rose to $30.3 an ounce on Wednesday, hitting its highest level in a month, as a drop in US core inflation supported bets on a less tight Fed monetary policy. Still, uncertain demand for silver used in manufacturing has kept prices well below the 12-year high of $35 reached in October. Overcapacity in China’s solar panel industry has forced photovoltaic companies to sign up to the government’s self-discipline program to regulate supply, limiting the outlook for silver demand from the leading industry.

WTI crude oil prices climbed above $80 a barrel on Thursday, developing a 3% gain from the previous session and trading near the highest level since mid-July last year amid rising global supply risks. The IEA expects the oil market to be slightly tighter this year than previously estimated, and noted that new US sanctions against Russia and Iran could put additional pressure on the supply balance. The EIA data also showed an eighth consecutive weekly decline in commercial crude inventories, which hit their lowest level since April 2022. This is the longest streak of declines since 2021 and inventories are now at a six-year seasonal low.

Asian markets were mostly down yesterday. Japan’s Nikkei 225 (JP225) was down 0.08%, China’s FTSE China A50 (CHA50) decreased by 0.38%, Hong Kong’s Hang Seng (HK50) was up 0.34%, and Australia’s ASX 200 (AU200) was negative 0.22%.

The Australian dollar broke a three-day streak of gains as investors reacted to a mixed employment report. Although Australia’s unemployment rate rose slightly to 4% in December from 3.9% in November, employment growth exceeded expectations. Looking ahead, investors are focused on Australia’s fourth quarter inflation data due out later this month, which will be a key indicator ahead of the Reserve Bank of Australia’s upcoming monetary policy decision in February. Markets are currently pricing in a 70% chance that the RBA will cut its 4.35 percent monetary rate by 25 basis points next month.