Yesterday evening, the financial markets became nervous. The VIX index contract rose, while riskier assets began to lose value. In the media it is argued that the market began to fear the firing of inflation in the US.
Data on price growth in the United States in April will be released tomorrow at 2:30 p.m. The market consensus assumes that CPI inflation will amount to 3.6 percent, increasing from 2.6 percent a month earlier. If this actually happens, then US inflation will be the highest since 2011. However, do the markets actually have anything to fear?
On Monday, the Nasdaq lost 350 points or 2.6 percent and fell to 13402. The S&P 500 fell 44 points or 1 percent to 4188. The Dow dropped 35 points to 34743. U.S. stock futures fell slightly today as investors await inflation data amid concerns that rising price pressures could trigger interest rate hikes. Data showed Monday that U.S. inflation expectations rose to 3.4 percent in April, the highest in a decade, as the economy reopens.
However, at this point, the Fed has shied away from talking about any interest rate hikes, and in turn, historical data seems to indicate that rising inflation above 2.7 percent in the U.S. does not generate declines in the indexes on an annualized basis, but at most halts their growth. In addition, there are no signs that the market is expecting faster interest rate hikes, as US bond yields have not risen sharply. Hence, it seems that perhaps the market was looking for some argument for a potential partial profit-taking, but in the bigger picture nothing has changed. Of course, if inflation remains at high levels for longer, only then we could count on a change in Fed rhetoric, and for now we will observe a base effect in the price data.
The rapid spread of COVID-19 cases in India may be more behind the reduced risk appetite, which has increased calls for Prime Minister Narendra Modi to shut down the country. Meanwhile, the WHO has classified a variant of the virus first identified in India as a global threat.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
77.46% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Trade this news from Conotoxia Ltd. platforms
Go to your account
