Markets zoom as cooling inflation fuels Fed rate cut hopes

Dow skyrocketed 703, advancers over decliners an impressive 6-1 & NAZ soared 466.  The MLP index gained 3+ to the 315s & the REIT index added 1 to 392.  Junk bond funds traded higher along with the stock market & Treasuries saw more buying which reduced yields sharply.  Oil finished up 3 to go over 80 from late session buying & gold zoomed 37 to 2719 (more on both below).

Dow Jones Industrials

US economic activity increased slightly to moderately in late Nov & Dec, the Federal Reserve said, with employment ticking up & prices rising moderately amid concerns about the potential impact of policies under Pres-elect Trump.  The findings, which draw on observations from the business & community contacts of each of the Fed's 12 regional banks, provide a snapshot of the economy.  "Contacts expected prices to continue to rise in 2025, with some noting the potential for higher tariffs to contribute to price increases," the central bank said in its summary of surveys & interviews from across the country known collectively as the Beige Book.  "More contacts were optimistic about the outlook for 2025 than were pessimistic about it, though contacts in several Districts expressed concerns that changes in immigration and tariff policy could negatively affect the economy."  Fed policymakers cut the policy rate by a full percentage point in the final 4 months of last year at 4.25%-4.50%.  Most project a smaller reduction this year, given slowing progress toward the Fed's 2% inflation goal in recent months & a strong labor market.  Consumer prices rose 2.9% in the 12 months thru Dec, the largest rise since Jul & an acceleration from Nov's 2.7% increase.  Dec's unemployment rate was 4.1%, lower than the prior month.  Going forward, uncertainty around how Trump's planned tariffs, tax cuts & other policies will affect the economy also has Fed policymakers in wait-&-see mode.  Financial markets are betting on no policy-rate reduction until June at the earliest.

US businesses optimistic but flag concerns, Fed survey shows

Fresh inflation data released today is likely to keep the Federal Reserve on pause during its next policy meeting this month, even though a new reading did show some signs of easing.  On a "core" basis, which eliminates the more volatile costs of food & gas, the Dec& Consumer Price Index (CPI) climbed 0.2% over the prior month, a deceleration from Nov's 0.3% monthly gain.  On an annual basis, prices rose 3.2%.  It was the first drop on a core basis after 3 months of being stuck at 3.3%.  "This latest inflation reading confirms a Fed rate cut skip at the January FOMC meeting," said EY chief economist Gregory Daco.  The new print "won’t change expectations for a pause later this month, but it should curb some of the talk about the Fed potentially raising rates,” said Ellen Zentner, chief economic strategist for Morgan Stanley Wealth Management.  The Fed next meets on Jan 28-29 & investors are nearly unanimous in their view the central bank will leave rates unchanged after reducing them by a full percentage point in late 2024.  "We are making progress on inflation, it's just very slow," former Federal Reserve economist Claudia Sahm said Yahoo Finance.  "Cuts are not coming later this month, but that doesn't mean they aren't coming later this year."

CPI reading keeps Fed on hold — but curbs hike talks

Wells Fargo & Company (WFC) reported a net income of $5.08B, up 47% year over year in the 4th qtr 4th qtr of 2024 & EPS was $1.43, beating the consensus of $1.34.  Revenue remained almost flat at $20.4B.  Analysts expected $20.6B.  The banking giant reported a 7% year-over-year drop in net interest income to $11.8B driven by deposit mix & pricing changes, the impact of lower rates on floating rate assets, & lower loan balances, partially offset by lower market funding.  Noninterest income increased 11% to $8.5B, driven by improved results from venture capital investments, an increase in asset-based fees in Wealth & Investment Management on higher market valuations, & higher investment banking fees, as well as increases in most other fee categories, partially offset by net losses on debt securities related to a repositioning of the investment portfolio & lower net gains from trading in Markets business.  For fiscal year 2025, WFC expects net interest income to be ~1 to 3% higher than 2024 net interest income of $47.7B, down 9% year over year.  Average loans (4Q25 vs. 4Q24) are expected to grow modestly due to anticipated growth in Corp & Investment Banking Markets & Banking, & auto & credit card sales.  Average deposits in all operating segments are expected to grow modestly, which should reduce the need for higher-cost market funding.  The stock jumped 4.92 (5%).

Wells Fargo Q4 Earnings: Investors Cheer 50% Jump In Net Profit, ROE Improvement, Bank Expects Up To 3% Jump In 2025 NII

Gold rose to the $2690 per ounce mark, extending gains from the prior session to its highest in over 1 month as cooling underlying inflation in the US favored bets of less restrictive monetary policy by the Fed this year.  Core consumer inflation unexpectedly slowed on an annual basis, while headline consumer prices refrained from showing aggressive upside surprises.  The results supported bullion & Treasuries across all durations as progress in disinflation would allow FOMC members to ease monetary restriction, lowering the opportunity cost of holding non-yielding assets.  Consequently, markets anticipated bets of a Fed rate cut to Jul instead of Sep.  Concerns of stubborn price growth had recently been magnified by pro-inflationary policies advocated by Pres-elect Trump, including tariffs on major trade partners & increased deficit spending.  In turn, more support from bullion was capped by signals of a potential rate hike by the Bank of Japan next week.

Gold Rises to Over 1-Month High

Oil prices were little changed, after falling the previous day, as a dip in US crude stockpiles & expectations of supply disruptions from sanctions on Russian tankers lent support amid forecasts for lower global fuel demand.  Brent crude futures were up 2¢ to $79.94 a barrel, after dropping 1.4% in the previous session.  US West Texas Intermediate crude rose 12¢ to $77.62 a barrel after a 1.6% drop.  Prices slipped yesterday after the US Energy Information Administration predicted oil will be under pressure over the next 2 years as supply should outpace demand.  However, the market found support today from a drop in crude stockpiles in the US, the world's biggest oil consumer, reported by the American Petroleum Institute late yesterday & expectations for supply disruptions after the Treasury Dept imposed sanctions Russian oil producers & its shadow fleet of tankers.  The API reported US crude oil stocks fell by 2.6M barrels last week.  But gasoline inventories rose by 5.4M barrels while distillate stocks climbed by 4.88M barrels.  In its report, the EIA expects Brent prices to fall 8% to average $74 a barrel in 2025, then fall further to $66 a barrel in 2026, while WTI will average $70 in 2025 & fall to $62 next year.  Global demand is expected to average 104M barrels per day in 2025, down from the prior estimate of 104.3M bpd. 

Oil little changed as falling U.S. stockpiles outweigh soft demand outlook

Stocks rallied as high hopes for bank earnings paid off & a crucial consumer inflation update reported key prices increased less than expected in Dec.  Stocks took a leg higher after the Consumer Price Index raised hopes for progress by the Fed reaching its 2% inflation target.  Favorable bank earnings reports were also helpful.