- The US will release the Consumer Price Index (CPI) report on Tuesday.
- The US released a mixed jobs report that rekindled hopes for a June Fed cut.
- US equities have performed well in the global markets due to good earnings and the recent tech rally.
Equities ended slightly lower on Monday ahead of US inflation data that might shape the outlook for Fed rate cuts. Investors were cautious, avoiding big positions as they awaited the US CPI report. Additionally, they took profits after Friday’s job report, which revealed weakness in the US labor market.
The US will release the Consumer Price Index (CPI) report on Tuesday. This report will likely majorly impact the market if it beats or misses forecasts. If inflation beats forecasts, it will signal renewed inflation in the economy, leading to a decline in rate-cut expectations. In this case, equities would decline, as prolonged high borrowing costs hurt businesses and the economy.
On the other hand, if the inflation figure misses forecasts, it would signal disinflation. As a result, investors would gain more confidence that the Fed would soon cut interest rates. Consequently, equities would rally.
The Federal Reserve will decide on policy next week. Initially, equities rose towards the end of 2023 as investors bet on the first cut at this March meeting. However, the outlook has changed significantly with incoming data.
Currently, markets see the first cut coming in June. Therefore, there is a high chance the Fed will hold rates next week. Still, investors will pay attention to what policymakers say regarding inflation and the expected rate cuts.
On Friday, the S&P 500 and Nasdaq ended lower after reaching new highs during the session. The US released a mixed jobs report that rekindled hopes for a June Fed cut. Notably, while employment rose, the unemployment rate beat forecasts, indicating softness in the labor market. Softer labor market demand eases inflation pressure, allowing the Fed to lower interest rates. Consequently, rate-cut bets rose, pushing equities higher. However, prices closed lower as investors took profits after a decent rally.
AAII sentiment survey (Source: AAII)
US equities have performed well in the global markets due to good earnings and the recent tech rally. Moreover, markets expect the Fed to start cutting interest rates soon, further boosting business in the US. However, the presidential election is also looming large and might cause a lot of volatility towards the end of the year.
