Stocks rebound as US CPI inflation misses

But is this going to be a short-lived pop?

US index futures jumped, and the dollar dropped in response to news of weaker than expected inflation data. The markets responded as if this slightly weaker inflation data was going to change the time of the taper. I, for one, don’t expect this to be a game changer. The Fed is still likely to announce the start of tapering its bond purchases before the end of the year. We saw falls for things such as air fares, accommodation and used cars. One may argue that if the Fed didn’t worry about these factors rising, surely it won’t make a difference now that they are easing back. Other transitory factors will still take several further months to get even close to normal levels, while uncertainty remains over whether the other, more persistent, factors driving up price pressures will come down fast enough to warrant monetary policy being this loose.

So, I reckon the markets may ease back lower after the initial spike to the release of US CPI data.  The initial response suggests that the markets have sighed relief that inflation has not accelerated again, as both monthly headline CPI (+0.3% m/m vs +0.4% m/m expected) and core CPI (+0.1% m/m vs +0.3% m/m) came in below expectations. This was the first time inflation missed expectations since October. On a year-on-year basis, headline CPI printed 5.3% as expected. This means that consumer prices have now remained above 5% for the fourth month.
 
It is worth keeping an eye on the major US indices as we head into the open.

So far, the S&P 500 has managed to hold its own above its bullish trend line, keeping the bears at bay:


Source: ThinkMarkets and TradingView.com

But the Dow has already broken below its trend line and several other global indices – most notably those in China and Hong Kong – have broken down.


Source: ThinkMarkets and TradingView.com

So, I wouldn’t be surprised if we see the sellers come in to take advantage of this rebound, later.