Will Inflation Burst Stocks' Bubble?
Stocks Softer Ahead of Inflation
US stocks are softening a touch today as traders brace for the latest US inflation data due this afternoon. The S&P ahs been on a tear recently with the index printing fresh all-time highs yesterday as risk sentiment has remained robust despite stalled progress in US/Iran negotiations. It seems risk markets have been content enough with the ongoing ceasefire, despite no breakthrough in attempts at securing a lasting peace deal. There had been speculation that China could help broker a deal between the US and Iran ahead of Trump and Xi’s meeting late this week. However, with the US rejecting Iran’s latest proposal, that now seems highly unlikely. Nonetheless, investors appear relieved that there has seen no return to war, with the growing view that both sides have lost appetite for a return to a full-scale conflict.
US Inflation & Fed Expectations
Looking ahead today, focus will be on the incoming US April inflation reading. If headline annualised CPI is seen rising to 3.7% from 3.3% prior, as expected, this will be firmly bearish for stocks near-term as Fed tightening expectations get ramped up. There is a view that the market is currently under-pricing a Fed rate hike this year and an upside surprise today could be just the catalyst to drive an aggressive hawkish repricing in that outlook, tearing stocks lower if seen. On the other hand, if inflation undershoots forecasts today that should help drive stocks higher as USD cools and Fed expectations remain tilt lower.
Technical Views
S&P
For now, the market remains just below the overhead resistance trend line, stalled around 7,412. Momentum studies have weakened, suggesting room for a correction lower. However, while price holds above the 7,004 level, focus is on a continuation higher medium-term.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.