Trading this week should be epitomised by a tale of two halves. The first being before the US CPI data and the second being the reaction in markets to the economic release itself on Thursday and Friday. While it seemed like we were going to carry over the mood from last week to trading this week, Wall Street had other thoughts.
S&P 500 index
Stocks ended up recovering strongly and has pretty much nearly wiped out its opening week losses. The S&P 500 is down just 0.1% from the end of 2023. Tech stocks still have some catching up to do though with the Nasdaq down by 1.1% compared to the end of last year.
But if anything else, it speaks to how easily a rally can be conceived in this market environment. And there’s no guesses as to which way traders are preferring, which means that they will be looking for any cracks in the inflation narrative to push the disinflation narrative instead.
And after yesterday’s action, it puts us in a rather interesting scenario ahead of the US CPI data. Will markets be setting up hoping for a softer report on Thursday? Or are we going to see more of a reality check whereby traders keep a lid on the optimism before we get to the economic release?