U.S. CPI preview - Be very careful with these details as you trade today

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U.S. CPI preview - Be very careful with these details as you trade today

Investing.com - Markets are on edge ahead of this week's macroeconomic data: the United States inflation for the month of April, which we will know at 8:30 am. It is expected that the overall rate has risen by 3.4%, one tenth less than the previous month, and that the core rate has increased to 3.6%, one tenth less than in March.

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"Prices are expected to have moderated slightly after three months of surprising increases, exceeding expectations from the consensus of analysts," noted Link Securities. "If the projections are met, European and US bond and equity markets will react positively, while if, as has recently happened, the readings exceed expectations, we believe it will create some tension in the markets," these analysts add.

"In our opinion, if the reading falls within the range of +3.4%/+3.5%, then nothing significant is likely to happen. However, the probability of an increase is not negligible, which would cool down both stock and bond markets in the short term. Despite the Federal Reserve having considerable leeway, a renewed surge in inflation would prompt its members to adopt a more hawkish/tougher stance that could weigh on a market whose annual gains have been more than generous for stocks," stated Bankinter.

"Meanwhile, bonds seem to be well supported at current levels: T-Note ~4.50% and Bund ~2.50%," these experts added.

Data, in detail

"The markets will focus on the inflation of services excluding housing, which stood at 8.7% annually in the first quarter of this year, compared to 5.1% in the fourth quarter of 2023," emphasized Ronald Temple, Chief Market Strategist at Lazard (NYSE: LAZ ) AM. This expert acknowledges that while some factors driving this inflation seem unsustainable, such as auto insurance costs, predicting the timing of the slowdown is difficult. He expects any increase in core CPI of similar magnitude or higher than the 36 basis points in March to provoke a negative market reaction, while any significant downside surprise will relieve investors and increase the likelihood of further Fed rate cuts by year-end.

Taking a broader perspective, inflation figures are "intolerably" high relative to the Fed's 2% inflation target, but the slowdown to date is "impressive," Temple underscored.

A key factor in this expert's optimism about disinflation is housing, a component that represents approximately 45% of core CPI and slightly less than 20% of core personal consumption expenditure (PCE) deflator. Private market data indicate that housing inflation has sharply declined without yet being reflected in CPI data, so we should see a significant deceleration in housing-driven inflation in 2024," explained the expert.

Watch out for this figure too

"However, it is worth noting that this afternoon also sees the release of US retail sales figures for the month of April, figures which in our opinion are very relevant as they could, if worse than expected - a slight monthly increase is expected - 'set off some alarms' regarding the strength of private consumption, the most relevant component of the US GDP (it accounts for approximately 70% of it) and, therefore, reopen the debate about the potential entry of this economy into stagflation, that is, a phase of low growth and high inflation, a scenario that would be very negative for the stock markets," warned Link Securities.

How to trade today

"We expect market activity to be subdued, at least until this afternoon when the aforementioned macroeconomic indicators in the US are announced, indicators which, in our opinion, have the capacity to largely determine the course of Western markets in the short term," stated Link Securities.

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