The United States will soon announce its inflation rate for December of 2022. After reaching 9.1% in June 2022, annual consumer price inflation has steadily declined for the following five months, reaching a yearly low of 7.1percent of the overall in November 2022. As a result, the market is anticipating a further decline of 60 bps to 6.5percent of the overall for the last month. This would be the lowest monthly rate in the last 12 months.

Recent Nonfarm payroll data provided conflicting signals, making it hard to assess the significance of the decline in today's inflation data. Although the revised figure of 256K was still higher than the original estimate of 200K in November 2022, the rate of job creation has slowed to 223K. While unemployment reached a record low, wage growth slowed to 0.3% year-over-year from 0.4% the previous month.

The US Federal Reserve has already begun slowing the pace of its rate hikes in anticipation of the lower CPI data needed to bring inflation under the targeted 2%. Chairman of the Federal Reserve Board, Mr. Powell has made clear his intention to maintain downward pressure on inflation at the expense of some job losses and discomfort for American families. The more pertinent inquiry is whether or not the Dow can rise above 34,500 with the help of a 60 bps decline.

First of all, I don't think it's reasonable to expect inflation to fall by 60 basis points anytime soon. Oil prices have also dropped significantly in the past month, with Brent crude falling below $76B per barrel for a time, but the market still seems overly optimistic despite this. When standards are high, success can feel like an uphill battle. In other words, there's room for an unsatisfactory result. Thus, if the actual print is lower than the expected 6.5%, the Dow Jones may make another U-turn and head back down to the 33,500–33,450 support area.

For the second scenario, in which the CPI number coincides with market forecasts, the price appears to be discounted even further. The Dow Jones has already gained about 455 points in the prior two sessions, limiting the room for a further rally ahead of the anticipated CPI data. Last time cpi dropped by 60 bps in November 2022 (from 7.7percent of total to 7.1%), which still beat the anticipation of 7.3%, the Dow Jones surged on that day, but the rally ran out of steam out in a prompt manner and the index sunk in the following four consecutive sessions.

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