The immediate market reaction was negative, with US indices retreating sharply and the 10-year bond yields rising to 3.04%.
But the truth is that the CPI figure shows signs of decline for the first time, and although not as much as expected, it may be the first symptom that inflation is reaching a peak. However, it has not worsened in April.
These types of immediate reactions after publishing a relevant figure, like yesterday's, are quite common. The market responds negatively with orders guided by algorithms to a figure less positive than expected without a deeper analysis of the true meaning of the data.
It is also usual that after a more detailed analysis, the market acts in the opposite direction, as it happened yesterday in the case of stock indices; this happened only for a short period.
Bond yields returned to their starting point, the US 10-year to the 2.92% zone. The Wall Street indices were sold off strongly after a brief subsequent recovery.
The negative correlation between treasury bond yields and stock indices that had been going on for weeks unraveled yesterday. Even though long-term interest rates remained low, perhaps because of the falling inflation data, the stock markets experienced a pronounced decrease, especially the Nasdaq, which lost almost 3%.
The question that arises from this behavior among market analysts is whether investors' concerns are no longer related to higher interest rates but to a deep slowdown in the economy. The growth data and the economy’s leading indicators published will become relevant again, possibly setting the course for the markets, at least in the coming weeks.
On the other hand, oil experienced a rise of almost 6% even though inventory figures grew well above forecasts. This movement, however, would not fit in with a forecast of an economic slowdown which, if it occurred, would mean a drop in global demand. There is talk that purchases for storage are taking place in anticipation of a worsening of the Ukraine conflict. In short, we can conclude that yesterday's session was somewhat abnormal because the usual correlations between assets, events, and the published data were not followed.
Normally, when the market behaves in a way that does not coincide with the fundamentals, it tends to adjust sooner or later.
Sources: Bloomberg, Reuters
