Market Holds Breath Awaiting CPI

The Stock Market Awaits CPI Announcement

The morning started with the Producer Price Index (PPI) report at 8:30 A.M. Eastern. This data did not yield an overwhelming reaction in the market but did send lower stocks. The PPI indicated that consumers may see trickle-down inflation in the coming months, an early sign that inflation has yet to see its peak. The numbers released (0.4%) were higher than the median forecast of 0.2% and the previous of -0.2%. The overall year-on-year is at +8.5%.

As we have previously discussed, PPI is a leading indicator for the Consumer Price Index (CPI). Often times if the PPI numbers are elevated, that expense “trickles down” to the consumer, and the CPI will increase as a result. 

As the opening bell sounded, the market was in no hurry to resume the pre-market downward trend. The PPI announcement did not elicit much of a response from the markets, even though the news was negative. This is probably because the markets are waiting for the Consumer Price Index (CPI) announcement. 

FOMC becomes a non-event

The anticipation of the Federal Open Market Committee (FOMC) held the market in a tight range for most of the remaining session. With no dramatic market movement after FOMC, the anticipation was all that the event had to offer. 

The market’s reaction to the FOMC minutes was muted at best. This comes as no surprise as the information contained in the minutes wasn’t anything new. Last week we discussed how the market has made a habit of “pricing in” these announcements before they happen. The big players on Wall Street found themselves positioning for the next catalyst at the end of the session.

In the last 30 minutes of the market, the indexes took a turn back down, breaking 3,600 in the S%P 500 futures (/ES). This drop in the market was nothing major as the Nasdaq and S&P held their current low of the year ahead of CPI. 

The psychological level of 3,600 on /ES is one to watch out for if there is no massive reaction in either direction in tomorrow’s report. 

The next big catalyst

The economic data madness is not over just yet; the massive catalyst of the Consumer Price Index (CPI) will enter the market at 8:30 A.M. Eastern Thursday morning. The median forecast for the year-on-year is 8.1%, a slight decrease from the previous report of 8.4%. 

The distinction between bad data and negative market reactions needs to be made. The fact is that inflation is higher than most would prefer, yet there could be a glimpse of optimism in the report. It is not as simple as knowing inflation is high right now to anticipate the market’s next move. The key number to look for when the information comes out will be 8.1.

If the inflation report is above 8.1, the possibility of an adverse reaction is much higher. On the other side of the coin, if the number is below 8.1, that opens the door for a positive response.

The market barely closes red

At the market close today, the Nasdaq and the S&P 500 were negative at the end of the session. The S&P 500 closed down 0.24%, losing 8.60 points, while the Nasdaq futures closed down 0.01%, a loss of 0.93 points. The Dow did not follow suit, closing up 0.09%, adding 1.73 points.