Inflation Day: Today's Report Could Help Revive Year-End Rally Hopes
Today could be decisive in terms of determining whether the stock market's year-end rally will materialize, as all eyes turn to the looming inflation report.
Inflation, a driving force in the markets for the past two years, directly influences rate decisions by the Fed and ECB. Powell has repeatedly said that the Fed is focused on getting inflation back toward the 2% target.
So, let's shift our focus to the market's expectations to see if we could get any closer to that target today.
Our economic calendar anticipates a nearly flat core CPI, signaling minimal change, along with a decline in both monthly and annual CPI figures.
However, major investment banks offer a slightly different perspective, as illustrated below:
Source: The Internet
Specifically, while expectations for the CPI figure align, showing a decline at +0.1 percent change on a monthly basis and +3.3 percent change annually, the core figure anticipates a slightly larger annual change (averaging 0.1%).
We will find out in the next few hours if these figures are confirmed or if there is a deviation.
What remains certain is that one of the crucial components of the price figure, the Shelter component (comprising about one-third of the total figure), has been exhibiting signs of a slowdown for several months.
Source: Yardi
This could contribute to the overall decline. As is customary, the market's response to the report will be pivotal, likely favoring a positive reaction to a lower-than-expected figure and conversely reacting unfavorably in the opposite scenario.
Patience is key, not only after today's probable knee-jerk response but also throughout the entire week, to get a comprehensive understanding of how market participants perceive and digest the data
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