Fundamentals

US Equities, Commodities, Greenback All Higher After CPI Report

U.S. Session Key Developments

•    CPI Report Relieves Investors of Fed’s Stimulus Withdrawal
•    Dollar Reaches Eight Month High Against Basket of Currencies

A lower than expected rise in the Consumer Price Index gave US stocks a lift and helped cap off the biggest weekly rally since November.  Initially, index-futures had been pointing to a lower open after the Fed raised the discount rate by a quarter point to 0.75 percent in a surprise decision made yesterday after exchanges closed.  Investors worried that the move was the first of many that the Fed would be taking to remove the unprecedented stimulus that has been propping up the financial system.  Futures than pared losses after the CPI rose 0.2 percent in January, less than the 0.3 percent economists had been predicting.  The CPI, a gauge of consumer inflation, quieted investors’ worries by signaling that inflation has not yet become a problem.

The greenback spiked after yesterday’s surprise Fed move but also trimmed gains after the CPI data.  The dollar index, a measure of the dollar’s strength against its major trading partners, was as high as 81.342 before closing the week at 80.553—its highest weekly close since the first week of June 2009.  Commodities gained despite the strength in the greenback with the CRB Commodity Index up 0.6 percent.  Precious metals were the best performers, with gold spot up 0.95 percent and silver spot up 2.9 percent.  Energy was also up as crude gained 0.95 percent but natural gas gave up 2.47 percent.  Next week we will hear about US Consumer Confidence as well as fourth-quarter GDP as we wait to see if equities can continue with this week’s rally.

DJIA 30                  10,402.35                    +9.45                           +0.09%
The Dow Jones Industrial Average gained for the fourth straight day to finish the week up 2.5 percent.  The index trimmed its 2010 decline to less than 0.3 percent after briefly turning positive for the year during the session.  Just over half the issues were up today as Pfizer, Du Pont, and Boeing all gained over 1 percent to lead the advance.

S&P 500                     1,109.17                      +2.42                           +0.22%
Six of the ten industry sectors were up today as the Standard and Poor’s 500 Index posted the largest advance of the three major US indices.  Utility stocks were up 1.41 percent as crude oil reached a five-week high.  Financial stocks rose 0.57 percent as a group as Berkshire Hathaway, a recent addition to the S&P, gained 2.74 percent to contribute the most to the S&P’s advance.  Berkshire shares closed at 78.74, a 15-month high.

NASDAQ                   2,243.87                      +2.16                           +0.10%
The tech heavy Nasdaq Composite Index closed higher today despite tech stocks giving up 0.27 percent.  Just over half of tech stocks advanced while Dell contributed the most to the sector’s decline.  The company’s shares dropped 6.7 percent after the PC manufacturer reported that gross margin fell below the 18 percent projected by analysts.  Holiday sales of low-priced PCs and higher component costs weighed on earnings.

Written by Gary Chalik, CFDTrading Research
Please send any comments about this report to GChalik@fxcm.com