Investors expect a decline in US consumer inflation

Yesterday, the US indices traded cautiously and had no unified dynamics. By the close of the stock market, the Dow Jones index (US30) decreased by 0.26%, the S&P 500 index (US500) added 0.25%, and the NASDAQ Technology Index (US100) jumped 0.98%.

According to hedge fund strategists, investors are looking for signs of a potential peak in inflationary pressures, and if today's data shows a decline in consumer prices, stock indices will show a strong rally. On the other hand, if the inflation data are worse than expected or there is a new acceleration of inflation, the stock market may see a strong sell-off.

The US Congress plans to allocate another $40 billion to Ukraine. The proposal for additional funding related to COVID-19, which some Democrats wanted to combine with emergency funding for Ukraine, will now be considered separately. On April 28, Biden asked Congress for $33 billion to support Ukraine, including more than $20 billion in military aid. The proposal was a dramatic escalation of US funding for the war with Russia.

Yesterday, US President Joe Biden said that the COVID-19 pandemic, combined with supply chain problems and Russia's war with Ukraine, were to blame for the spike in inflation. The US government rushed trillions of COVID-19 bailouts and infrastructure spending into the economy.

Major European indices traded higher yesterday. Germany's DAX (DE30) gained 1.15%, France's CAC 40 (FR40) jumped by 0.51%, Spain's IBEX 35 (ES35) closed at opening levels, and Britain's FTSE 100 (UK100) increased by 0.37%. Germany's inflation rate jumped to 7.4% year on year, the highest level since 1981. Over the last month, consumer prices added 0.8%. The acceleration of inflation includes rising energy prices following Russia's invasion of Ukraine. Additional factors include delivery bottlenecks due to supply chain disruptions caused by the Covid-19 pandemic and notable price increases in the preceding stages of the economic process. ECB spokesman Madis Muller said today that the ECB's current policy is inadequate at the current level of inflation. He added that the bond-buying program should end in early July or earlier, and the interest rate should be raised to positive levels this summer.

Oil prices continue to fall as tough quarantine measures in Shanghai continue to raise demand concerns. US President Joe Biden stressed yesterday that as the inflation surge had driven up annual consumer prices by more than 8%, the US is releasing oil from its strategic oil reserves and pressuring companies to return record-high profits to consumers in the form of lower prices.

Asian markets traded lower yesterday. Japan's Nikkei 225 (JP225) decreased by 0.58%, Hong Kong's Hang Seng (HK50) was down 1.84%, and Australia's S&P/ASX 200 (AU200) fell by 0.98%. As the world's second-largest economy remains under strict quarantine restrictions due to Covid-19, China's growth prospects remain a challenge for global trade. China's consumer price index increased to 2.1% y/y. Price growth for the month was 0.6%. In contrast, factory inflation declined from 8.3% to 8.0% y/y. The slowdown in PPI (factory inflation) was due to government measures to stabilize commodity prices and increase supply. On Tuesday, China's state planner called for stabilization of energy prices and acceleration of oil and gas exploration and development. Beijing has planned daily coal production at 12.6 million tons this year and gives priority to energy security due to geopolitical uncertainty caused by Russia's invasion of Ukraine.

Main market quotes:

S&P 500 (F) (US500) 4,001.05 +9.81 (+0.25%)

Dow Jones (US30) 32,160.74 -84.96 (-0.26%)

DAX (DE40) 13,534.74 +154.07 (+1.15%)

FTSE 100 (UK100) 7,243.22 +26.64 (+0.37%)

USD Index 103.91 +0.26 (+0.25%)

• – US FOMC Member Bostic Speaks at 02:00 (GMT+3);
• – China Consumer Price Index (m/m) at 04:30 (GMT+3);
• – China Producer Price Index (m/m) at 04:30 (GMT+3);
• – German Consumer Price Index (m/m) at 09:00 (GMT+3);
• – Eurozone ECB President Lagarde Speaks at 11:00 (GMT+3);
• – US Consumer Price Index (m/m) at 15:30 (GMT+3);
• – US Crude Oil Reserves (w/w) at 17:30 (GMT+3).

by JustMarkets, 2022.05.11

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.