On Monday, Asian markets are poised to begin a week brimming with significant local economic data on an optimistic note, buoyed by another round of better-than-expected U.S. job growth figures that spurred a sharp upswing on Wall Street last Friday.
The rebound in risk appetite during U.S. trading on Friday presented another anomaly in correlations, occurring despite a spike in bond yields, a 4% weekly increase in oil prices, and further diminishing expectations for U.S. rate cuts.
Meanwhile, geopolitical tensions persist, contributing to a surge in gold prices to a record high of $2,330 an ounce on Friday.
As is customary for a Monday Asia open following a positive closure on Wall Street the previous Friday, the lingering question pertains to whether the momentum will transfer to local markets.
You’re not alone if you find it challenging to get your bearings this morning. Amidst the looming uncertainty of an inflation cliffhanger, diving into “risk-on” positions this morning amid surging oil prices might seem wholly counterintuitive.
Wednesday’s release isn’t the final inflation update the Fed will receive before the next policy gathering. The upcoming release of PCE prices on April 26 will also be on their radar. However, it would be exceedingly beneficial if CPI could show some semblance of cooperation for the next month or two.
The last two CPI releases haven’t been favourable from the Fed’s standpoint. Core price growth registered at 0.4% on a month-to-month basis during January and February. This inconsistency doesn’t align with the Fed’s efforts to nudge the 12-month print back to target, let alone persuade it to remain there.
It’s increasingly challenging to reconcile the incoming macro data with the notion of Fed rate cuts starting in June. While there’s still some time, it’s dwindling fast.
Suppose March CPI figures maintain their elevated levels, and the supporting cast of tier-one US economic data, including retail sales and advanced Q1 GDP, confirms the robustness suggested by the balance of last quarter’s data. In that case, the Committee might indicate at the May FOMC meeting that they are hesitant to cut rates through the summer.
