Inflation cools down, sparking market optimism, US stocks hit new highs, gold pulls back, and rate cut expectations intensify

December 19th, the financial markets usher in a wave of positive signals. The US November CPI annual rate fell to 2.7%, the slowest increase since early 2021, with core CPI even lower at 2.6%, both below expectations. This data marks a turning point in the recent trend of persistent inflation.

Market Logic Behind CPI Retreat

Regarding whether a high or low CPI is better, the market has responded with action. Moderate CPI decline is widely interpreted as a signal for the Federal Reserve to further cut interest rates, directly fueling investor expectations for easing monetary policy. The VIX fear index dropped by 4.37%, the 2-year US Treasury yield briefly fell to 3.43%, a two-month low, while the 10-year US Treasury yield slid to 4.12%.

However, some economists question the authenticity of this data. Capital Economics analysts pointed out that housing prices, the largest component of CPI, have been essentially flat over two months, which seems unusual. Morgan Stanley economists believe that data volatility may reflect methodological issues, and we will need to wait for December data to confirm whether this is a statistical anomaly or a genuine slowdown in inflation.

Bullish Stocks and Bonds, Leading Risk Assets

Driven by rising expectations of rate cuts, US stocks rose across the board, with the Dow up 0.14%, the S&P 500 up 0.79%, ending a four-day losing streak, and the Nasdaq surging 1.38% to 23,006 points. The China Golden Dragon Index rebounded 0.97%. European stocks also performed well, with German stocks up 1%, French stocks up 0.8%, and UK stocks up 0.65%.

Among popular stocks, memory chip manufacturer Micron Technology surged over 10% on strong earnings outlooks, becoming a market focus. Amazon rose 2.5%, Tesla up 3.5%, and Nvidia increased 1.9%, with tech stocks generally performing strongly.

The US initial unemployment claims decreased by 13,000 to 224,000, slightly below expectations, providing further evidence of labor market resilience.

Commodity Markets Diverge, Gold Rises and Falls

Gold initially rose briefly on the back of rising rate cut expectations but then pulled back, falling 0.15% to $4,332.5 per ounce. Analysts believe that gold’s reaction to rate cuts is gradually becoming more rational, with some profit-taking emerging. WTI crude oil fell 1.48% to $55.9 per barrel.

In contrast, copper prices remain strong. The New York copper futures have increased by 34% this year, and London copper hit a new high last week of $11,952 per ton. BHP CEO stated that copper supply tightness is expected to continue into next year and even until 2030, with UBS forecasting copper prices could reach $13,000 by the end of next year.

In the forex market, the US dollar index rose slightly by 0.02% to 98.4, USD/JPY fell 0.08%, and EUR/USD declined 0.14%.

Cryptocurrency and Hong Kong Stocks Trends

Cryptocurrencies performed weakly, with Bitcoin down 0.94% in 24 hours to $85,406, and Ethereum down 0.25% to $2,825. The Hong Kong night session futures closed at 25,675 points, up 161 points, with a premium of 177 points.

Central Bank Policy Turning Point

The Bank of England announced a 25 basis point rate cut to 3.75% on Thursday, in line with market expectations. BoE Governor Bailey stated that the pace of rate cuts is expected to slow at some point. The internal voting result was 5-4, reflecting a cautious attitude among policymakers toward further easing.

The European Central Bank maintained interest rates unchanged for the fourth consecutive meeting, with sources indicating that the rate cut cycle is likely over. After eight rate cuts, unless a major shock occurs again, deposit rates should remain around 2%. Policymakers emphasized that if inflation remains below target for several consecutive months, further monetary easing is still possible.

Corporate Dynamics and Market Risks

Nike plunged nearly 10% after hours to $59.20, with second-quarter net profit down 32% year-over-year, and revenue growth of only 0.6%. Meta is developing a new image and video AI model codenamed Mango, expected to be released in the first half of 2026. Oracle and OpenAI’s large data center power supply project in Michigan has been approved, with both parties’ planned capacity exceeding 8 gigawatts across the US, bringing over $450 billion in investment over three years.

Deutsche Bank survey shows that AI valuation risks have become the biggest single threat to market stability in 2026, with 57% of respondents believing that a sharp decline in tech stock valuations is the greatest risk next year. About 71% of respondents prefer investing in other parts of the US stock market rather than the “Big Seven.”

Today’s Focus

The Bank of Japan will announce its interest rate decision, with Japan’s November core CPI data pending, and Governor Ueda Haruhiko will hold a press conference. Germany will release January consumer confidence index and November producer price index monthly rate. The Eurozone will publish the preliminary December consumer confidence index. The US will release the final December University of Michigan Consumer Sentiment Index, November existing home sales annualized data, and the total number of oil rigs as of the week ending December 19.