Investors await US inflation data

By: Miguel A. Rodriguez

11:33, 11 May 2022

Today one of the most relevant economic data in the current market context is published – April US CPI

The headline figure is expected to decline from last month to 8.1%, and the core CPI to fall to 6.1%. This metric is important to the Federal Reserve's future steps on interest rate policy.

The market saw a notable drop in the US 10-year bond yield yesterday, trading below 3% at 2.94%. 

The expected global economic slowdown and the price correction of a large part of raw materials are factors that lead some analysts to the conclusion that the maximum levels of inflation have probably already been seen in this period.

If this hypothesis was true, the Federal Reserve would not be forced to aggressively raise interest rates as the market has touted in recent weeks, and even less if the growth expectations of the economy are not exactly optimistic.

That’s why, yesterday, the market bought Treasuries ahead of the release of the CPI figure, probably closing short positions, pushing market rates down significantly. 

The declines in the prices of oil and Natural Gas are additional elements to consider. They support the thesis that prices may have reached their peak or may stop rising.

WTI Crude oil traded below $100/barrel yesterday, and Natural Gas sold off to the 6.40% support zone.

Gold also behaved in the same line of expectations of declining inflation levels, falling below the support zone around $1,850/ounce. From a technical point of view, it points to greater losses to levels below $1,800/ounce.

 

US Indices

However, the Wall Street indices did not seem entirely convinced of this better outlook for inflation, even if market interest rates fell significantly. The market experienced a roller-coaster session with continuous ups and downs, although with a better tone than the previous day. Investor risk sentiment remains very bearish, and it will probably take more than one positive figure to lift sentiment (e.g., a good CPI figure today).

The best performing index was the Nasdaq which closed 1% higher in what is only a brief rebound that cannot yet be considered a sign of the beginning of the recovery. 

 

Sources: Bloomberg, Reuters

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