“How far are we from bottoming?” “Was Wednesday's U.S. CPI a positive catalyst?” These are two of the most frequently asked questions by an institutional client today.
The latest consumer price index (CPI), the April inflation report, will be released on Wednesday. Ahead of the report, turmoil in U.S. stocks and major assets continued on Monday, with the Nasdaq tumbling 4.3 percent and the S&P 500 falling more than 3.2 percent.
The recent stock market trend has been greatly disturbed by trading and sentiment factors, but if the US April CPI to be released on Wednesday can confirm the inflation turning point (that is, inflation has peaked), it will help to alleviate some of the market's selling pressure.
First, the market generally expects the U.S. CPI to drop to 8.1% in April
According to Dow Jones estimates, economists expect the pace of U.S. inflation to moderate in April, with the headline consumer price index (CPI) likely to rise 8.1% from a year earlier (compared to 8.5% reported in March) The CPI, which includes food and energy, will rise by 6% year-on-year (compared to 6.5% reported in March).
The year-on-year growth rate of the US CPI in April is expected to be 8.1%; the year-on-year growth rate of the CPI excluding food and energy (ie core CPI) is expected to be 6.0%. In terms of month-on-month, the month-on-month growth rate of the U.S. CPI in April is expected to be 0.2% (the value announced in March was 1.2%); the month-on-month growth rate of the CPI excluding food and energy is expected to be 0.4% (the value announced in March was 0.3%).
Wednesday's CPI will show a broader slowdown in prices in core commodity categories, as demand for durable consumer goods has begun to steadily decline due to the outbreak. This will offset still-strong inflation in the core services sector. They expect the headline CPI to hover in the 7%-8% range until September; their forecast for the fourth-quarter CPI fell to 6.3%, down from an earlier forecast of 6.8%.
Second, how do institutions view the impact of the US April CPI report?
The surge in oil prices caused by the situation in Russia and Ukraine was the main reason why the U.S. CPI exceeded expectations in March – energy prices contributed 0.8% month-on-month growth to the March CPI (+1.2%), and the March CPI year-on-year (+8.5%) ) contributed 2.2% growth). If this factor is deducted, the US CPI may have ushered in an inflection point in March.
The good news at present is that the month-on-month contribution of oil prices in the next month is expected to be significantly reduced, and the superimposed durable consumer goods (used cars, etc.) are expected to be included in the decline. If the month-on-month can drop to 0.2%, the year-on-year growth rate of the U.S. CPI in April may be expected to From a high of 8.5% in March to around 8% – this will at least help inflation reach an apparent inflection point.
The likely contribution of gasoline prices to the April CPI index, which is expected to be a 0.3 percentage point drag on the April CPI index, will decline.
Investors will reassess the Fed's June monetary policy outlook if April CPI data confirms that inflation may have peaked in March, FXStreet's Eren Sengezer said in a research note. And if the CPI data unexpectedly rises, the market should stick to the view that the Fed will raise interest rates by 75 basis points in June.
If inflation has peaked, then maybe market expectations for central bank (Fed) action, more aggressiveness, have peaked, and the decline in bonds and stocks could narrow further. “It believes that this week's tough times for the market may be over.
It is also worth mentioning that before the release of the CPI report on Wednesday, Fed officials and Richmond Fed President Barkin will speak on inflation, and President Biden will also speak on inflation.
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