“Stock Markets Anticipate US CPI Data: Will Inflation Drive the Fed to Raise Interest Rates Again?”

By Laura Sanchez

Investing.com – European markets in doubt on Wednesday – , , … – awaiting the day’s macroeconomic data: the US CPI for April.

A rise of 5.0% is expected in April, and as for the CPI, it is expected at 5.5%.

“Anything short of a pickup in inflation should be welcomed by the market as it would support our central scenario that the Fed has now completed the process of raising rates. The current range (5, 00%/5.25%) already implies neutral real rates and, if inflation falls below 5%, they will even be positive. On the other hand, a rebound in inflation would raise fears of further increases rate”, explains bankinter (BME :).

“The data can condition, for better or for worse, the short-term performance of US bond and stock markets and, consequently, that of European markets”, underlines one at Link Securities.

“In this regard, it is worth recalling, as New York Federal Reserve Chairman John Williams did yesterday, that the U.S. central bank has not ‘officially’ terminated the process of raising official rates and that its policy will continue to depend on the data which will be published in the coming months, in particular those on inflation”, add these experts.

Therefore, we expect the markets to react one way or the other today, depending on the data release. Earnings above analysts’ consensus estimates will drive bond prices lower, pushing yields higher, and equity prices as investors interpret that the Fed may raise its benchmark interest rate again when of the June FOMC meeting. Conversely, “better” data than analysts predicted will, in our view, be welcomed by both markets, with many investors again betting on potential rate cuts this year, an assumption we continue to frown upon. “, they conclude at Link Securities.