GOLD PRICE, NASDAQ 100, US DOLLAR FORECAST:

• The December U.S. inflation report will steal the limelight on Thursday
• While core CPI is seen moderating on a year-over-year basis, the headline gauge is expected to reaccelerate, creating a headache for the Fed
• Gold prices , yields, the U.S. dollar and the Nasdaq 100 will be quite sensitive to the consumer price index data

Wall Street will be on high alert on Thursday when the U.S. Bureau of Labor Statistics releases its latest consumer price index report, as the data could guide the Federal Reserve's next moves in terms of monetary policy and, therefore, the timing of the first interest rate cut.

December headline CPI is seen increasing 0.2% m-o-m, pushing the annual rate to 3.2% from 3.1% - a setback for the Fed, whose goal is to return inflation to 2.0% over the long term. The core gauge, for its part, is forecast to have risen 0.3% m-o-m, with the 12-month related reading easing to 3.8% from 4.0% previously.

US INFLATION TREND

Source: BLS

To gauge potential market response, it's crucial to watch how the inflation figures match up against consensus estimates, keeping in mind two possible scenarios:

EXPECTATIONS FOR DECEMBER INFLATION DATA

A hot CPI report that surpasses forecasts will likely prompt traders to unwind dovish bets on the Fed’s path, sending Treasury yields and the U.S. dollar sharply higher. This outcome will be bearish for gold as well as stocks, potentially delivering an unexpected blow to the S&P 500 and Nasdaq 100.

Conversely, a benign report on consumer prices with milder-than-anticipated figures, especially on core metrics, may validate aggressive wagers on rate reductions in 2024, setting the stage for yields and the greenback to resume their slump. This scenario would be bullish for gold and risk assets.

Markets are currently pricing in about 130 basis points of easing for this new year, but with the U.S. economy holding up remarkably well and showing signs of stabilizing, the FOMC will be reluctant to slash borrowing costs meaningfully, especially if price stability remains elusive. It is for this reason that the December CPI report will take on added significance this time around.

2024 FED FUNDS FUTURES IMPLIED RATES