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Today, investors’ attention turns primarily to the US CPI inflation report, which, along with the labor market data we have learned, will be a major factor in determining what the Fed will do at the next FOMC meeting in May. 

Analyst consensus assumes that the headline reading for CPI inflation will drop significantly, coming in at 5.2% y/y versus the last reading of 6% y/y. The opposite is true for core inflation, which is expected to rise to 5.6% y/y vs. the last reading of 5.5%. While the headline reading is highly likely to show a decline (due in part to the high base effect), the core reading remains less certain.

The standard deviation of the consensus compiled by Bloomberg is close to 0.1%, and the analysts themselves mathematically lean more in favor of the scenario of keeping inflation unchanged/increasing to 5.6%. Source: Bloomberg

How will the market react? A lower inflation reading may support market bulls, who will react positively to the resulting lower reading lowering expectations for a continuation of the interest rate hike cycle. On the other hand, however, if inflation remains high and the underlying reading manages to surprise the consensus with a reading significantly above the expected value, markets on Wall Street may react with declines, in the face of condensed uncertainty stemming from weak macro data, the prospect of further tightening and the deepening specter of recession.

From a technical point of view, the US500 index remains in the zone outlined by medium-term trend patterns, which in the past have been important zones of support and resistance. The reaction to today’s data and the Fed’s Minute reading scheduled for this evening may determine the future direction of this market.

Source: xStation 5

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