Inflation Down! Is This The Market Rally We Needed?
In a Nutshell
CPI came in at 3.4% as expected, cutting odds of a September rate hike and sparking an immediate market rally. Chip stocks led the advance after South Korean memory-chip buying triggered trading halts, while Micron is now testing key resistance. Rising Japanese 2-year yields to a 31-year high of 1.65% could force Japan to sell U.S. Treasuries, raising yields and interest costs, even as gold surges and the false peace-deal rumor failed to dent equities.
These notes were generated by AI and may contain inaccuracies.
Today's Wednesday, August 12th. CPI data report came in as expected. Overall inflation went from 3.5% down to 3.4%, exactly as markets were anticipating. As soon as the report came out, the market gapped up, then gapped down, and then rallied into the open. Shortly after, markets began showing consolidation at elevated levels.
On the 4-hour timeframe, markets are elevated but remain way above the EMA and moving average, with everything still pointing up. At elevated levels, it's not wise to use leverage in case markets pull back. Having money on the sidelines available to take advantage of dip-buying opportunities is important. Being invested is appropriate since direction and sentiment are currently favorable, but overleveraging at overbought levels should be avoided.
Right after the CPI data report came out, the Fed rate monitor tool showed a drop to 38% probability of raising interest rates in September, which was significantly higher right before the CPI report. This supports the idea of a possible pause in rate hikes.
The chip sector is performing significantly better than the broader NASDAQ, which is up about 1%. Chip stocks are showing gains of 6% or more, with Western Digital up 5.6% and SanDisk up 8.8%. The South Korean market (Kospi), particularly for memory chip companies, has seen significant buying pressure that caused trading halts. South Korea serves as a major indicator for chip stock movements. When buying pressure kicks in and rallies begin in the South Korean market, it positively influences US chip companies. However, if the South Korean market begins to fall, it will have negative implications for the US market.
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