Given the palpable woes surrounding inflation, markets will be keeping a wary eye on today’s US CPI release. The median forecast expects an 8.1% headline inflation print for April, which is a moderation from the 8.5% year-on-year jump registered in March.
A lower-than-expected CPI print would allow risk assets to breathe a momentary sigh of relief. Still, it wouldn’t imply that the Fed has achieved its inflation goals; far from it. After all, a single print does not a trend make. Headline inflation above 8%, or even 6.6% according to the Fed’s preferred PCE gauge, remains far elevated compared to the central bank’s target of a 2% average.
On the other hand, a higher-than-expected CPI print today is set to ramp up the Fed’s hawkish convictions, potentially helping the dollar index reclaim the 104 handle, while heaping more downward pressure on stocks. If US inflation is shown to be climbing persistently, that could see spot gold break below its 200-day simple moving average and immediate Fibonacci support level around the mid-$1830 region.
In order for risk assets to meaningfully pare losses, markets need to be assured that US inflation has indeed peaked and will continue decelerating, in turn allowing the Fed to ease off from its ultra-hawkish stance. Until then, markets remain at the mercy of policymakers’ battle against the hottest inflation in 40 years, with risk assets living on a prayer as long as the Fed has yet to reach peak hawkishness.
