January ’s CPI is released at 8:30. It is generally agreed that a softer reading is likely to revive the new year’s equity rally while anything stronger may extend last week’s sell off. Economists expect a decline to 6.2% in January from 6.5% in the prior month. On a monthly basis, the headline rate is expected to increase by 0.5%, core up by 0.4%.
If the data suggests waning inflationary pressures, the odds increase the equity rally may continue. However, will attention soon shift to the pace of decline? Will focus change to a slower pace of disinflation than the previous two months, where each CPI print saw a decrease of 60 basis points?
Writing the obvious, predicting the path of inflation has proved almost impossible in the post-pandemic world, not to mention market reactions to it.
Last week, numerous Fed officials stressed the need to keep raising interest rates amid ongoing price pressures. Amid the hawkish remarks, the market is now expecting a peak in the overnight rate around 5.2%, up from 4.9% earlier in the month.
Yesterday equities staged a modest rebound as a New York Fed survey indicated that one year inflation expectations were little changed in January. The household income that points to wage disinflation was latched upon by the markets as this data point had the largest one month drop in nearly 10-year history of the series according to the NY Fed.
Last night the foreign markets were up. London was up 0.44%, Paris up 0.51% and Frankfurt up 0.38%. China was up 0.28%, Japan up 0.64% and Hang Seng down 0.24%.
Futures are flat but this could change radically given the possible significance of the 8:30 data. The 10-year is up 3/32 to yield 3.70%.
