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Key US inflation report influenced the markets

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Miguel A. Rodriguez
Miguel A. Rodriguez
05 November 2022
The University of Michigan's Surveys of Consumers was in the center of attention.

This critical inflation figure showed a reversal in both short-term and medium-term expectations. Inflation expectations refer to data on which central banks base their monetary policy rather than current inflation data. If we add the collapse in the prices of the main raw material (agricultural, metals, and even crude oil - which fell by around 16% in the last two weeks), we can only conclude that the forecasts for an interest rate rise relaxed. The odds for a smaller 50-bps hike in the July meeting have doubled to 27%.

The leading indicators of the US economy already show signs of weakening. In this sense, the US consumer confidence figure published this week is of great importance. But for this reason (the economy weakening and the inflation expectations receding), the probability that the Federal Reserve will not have to raise interest rates as much as anticipated is increasingly high.

This week, a very important piece of data on inflation, Personal Consumption Expenditures (PCE), will be published, and the Federal Reserve will closely monitor the outcome to see the evolution of price levels. Without a doubt, the PCE report will directly impact the markets, whether it confirms the decline in inflation or shows an increase. In any case, the surprise would come from a lower figure that would therefore suppose an upward impulse for the stock markets.

That sentiment weighed on the US dollar and boosted stocks - all three major Wall Street indices showed sharp gains.

Nasdaq rose strongly last week, after two weeks of consecutive declines, and has technically broken through the first resistance zone at 11,792 and does not encounter any technical obstacles until the level of 12,947.

Sources: Bloomberg, Reuters.

This information/research prepared by Miguel A. Rodriguez does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views and consequently any person acting on it does so entirely at their own risk.The research provided does not constitute the views of KW Investments Ltd nor is it an invitation to invest with KW Investments Ltd. The research analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report.The research analyst in not employed by KW Investments Ltd. You are encouraged to seek advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit that conforms to your specific investment objectives, financial situation, or particular financial needs before making a commitment to invest. The laws of the Republic of Seychelles shall govern any claim relating to or arising from the contents of the information/ research provided. 

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Miguel A. Rodriguez
Miguel A. Rodriguez
Financial Writer

Miguel worked for major financial institutions such as Banco Santander, and Banco Central-Hispano. He is a published author of currency trading books.