Trading view front
Fundamental Analysis

Equities Close Flat as Investors Remain Sidelined Ahead of US Inflation

  • Fed’s Goolsbee warned the Federal Reserve against raising rates too quickly.
  • Analysts predict that the headline and core CPI will decline to 0.2% and 0.4%, respectively.
  • Investor sentiment in the Eurozone rebounded in April.

Wall Street equities closed flat on Tuesday as investors awaited inflation data and the unofficial start of the first-quarter reporting season. 

In the afternoon, stocks temporarily rose as Chicago Fed President Austan Goolsbee warned the Federal Reserve against raising rates too quickly to rein in inflation.

Without market-moving variables, investors looked forward to the consumer pricing index (CPI) released on Wednesday in search of signs that the long-term, gradual inflation reduction is still ongoing.

Analysts predict that the headline and core CPI will decline to 0.2% and 0.4%, respectively, monthly. However, year-over-year forecasts predict that the headline will fall from 6.0% to 5.2%. The core measure excludes volatile food and energy prices and is predicted to increase from 5.5% to 5.6%.

National unemployment rates in the US, UK, and Eurozone (Source: National statistics offices)
National unemployment rates in the US, UK, and Eurozone (Source: National statistics offices)

Aggressive rate hikes in the US, UK, and Eurozone have yet to cool demand in the labor markets. There is, therefore, still more for the central banks to do.

According to CME’s FedWatch tool, market participants are pricing in a 67% possibility of another 25bps interest rate hike after the Fed’s May monetary policy meeting. This comes as inflation gradually cools to the Fed’s average annual 2% objective.

Additionally, investors have their sights on the first-quarter reporting season, which gets underway on Friday with results from three major banks.

European shares touched a one-month high on Tuesday, boosted by mining stocks. The pan-European STOXX 600 index increased by 0.6% at the close, continuing its two-day winning streak.

As a result of a weaker currency and rising prices for precious metals, mining company shares increased by 3.6%. They marked their largest one-day percentage rise in more than four months.

A survey released on Tuesday revealed that investor sentiment in the Eurozone rebounded in April following a surprise decline in March.

Investors will also watch Germany’s inflation figures across the Eurozone. Data released on Tuesday revealed that retail sales in the region fell by 3% in February, less than had been predicted in a Reuters poll.

The turmoil in the banking sector has caused the International Monetary Fund to lower its projection for global growth in 2023 modestly. The IMF expects Germany’s economy to shrink in the first quarter.