Discussion: Will U.S. stocks welcome surprise or shock? All eyes on this stat tonight

The market is waiting with bated breath! At 20:30 Beijing time on Friday, US stocks will usher in overweight inflation data – US May CPI.

Judging from the current market expectations, industry insiders’ specific forecasts for the May CPI data in the United States are as follows:

  • The year-on-year increase in CPI in May is expected to remain at a high 8.3%, unchanged from the previous month, and the initial forecast in a Bloomberg survey last week was 8.2%;

  • The year-on-year increase in the core CPI, which excludes food and energy, is expected to slow to 5.9% in May from 6.2% in April;

  • The month-on-month increase in core CPI in May is expected to slow to 0.5% from 0.6%.

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Recent U.S. CPI statistics, source: U.S. Department of Labor

Notably, a new report from JPMorgan has led to speculation that tonight’s CPI data will prove that inflation is hotter than expected. The bank’s chief economist, Michael Feroli, predicted that the CPI will be higher than widely expected.

Even Sarah House, a senior economist at Wells Fargo, doesn’t expect oil prices to peak, so she doesn’t expect inflation to peak either. She expects the headline CPI to rise 8.4% in May.

Can U.S. stocks withstand the test tonight? Let’s take a look at the recent US CPI night, how US stocks have performed…

According to Bespoke Investment Group statistics, in the past two years on the CPI release date, although the return of the S&P 500 index has been relatively neutral overall, since Fed Chairman Powell stopped using the word “temporary” to describe inflation in November last year, US stocks have been on the CPI release day. There are more declines – especially in the past four CPI release days, US stocks have all closed down!

Over the past six CPI release days, the S&P 500 has mostly declined. In terms of sector performance, energy stocks performed the best on the CPI release day with a median gain of 1.1%, while the technology sector was the worst performer with a median decline of 1.1%.

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For a market worried about inflation, recent reports have offered little comfort to investors, Bespoke noted. Only three of the past 24 months have seen headline CPI below expectations (release dates are June 10, 2020, December 11, 2020, and September 14, 2021).

Ironically, the S&P 500 actually fell on each of those three days. To be fair, though, all three reports came before Powell dropped the word ‘transient’.

Analysts said tonight’s inflation report could affect not only the next round of trading in the market, but also the Fed’s decision on interest rates later this year. The Federal Reserve will hold its June interest rate meeting next week. It is widely predicted that the Federal Reserve will raise interest rates by 50 basis points in both June and July. US stocks may have reacted in advance to this.

What worries the market the most now is that in the last hour of the close last night, the three major U.S. stock indexes collectively staged a sharp dive. Traders are scrambling to act ahead of the CPI report, suggesting that the market seems genuinely concerned that tonight’s CPI numbers may remain high. They prefer to wait and see before the data is released, and then decide on the next strategy after the data is settled.

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On the other hand, the White House admits that it is not optimistic about the high inflation situation in the United States. U.S. Treasury Secretary Janet Yellen recently expected inflation to remain high.

And the White House on Thursday again for inflation data ahead of schedule, the White House’s new press secretary Karine Jean-Pierre revealed that the inflation data will be released on Friday is likely to show more evidence of high inflation.

We expect headline inflation numbers to pick up and expect some impact on core inflation from the Russia-Ukraine conflict, especially when you factor in the impact of higher airfare and jet fuel prices.

17.png Will the CPI data be as expected this time?

Will US stocks stage a hearty rally tonight?

Or suppressed by inflation data?

What operational strategies have you guys prepared?

Let’s hold your breath together!

Editor/Corrine

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