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Markets remain calm on the data: what to expect

by SuperiorInvest

European and US stocks started the week with a pause, as investors took a breather after the main stock indexes in these regions hit all-time highs. He, him and everyone pulled back from an ATH level on Monday. MAMAA shares fell about 1%, Amazon (NASDAQ 🙂, which had its first day in, fell 0.15%, while Nvidia (NASDAQ 🙂 managed to make a small gain.

It seems that there is a moment of calm and silence after the important technological gains; Investors will decide if this rally is worth continuing higher immediately. The week brings some important economic data to the table. The United States will publish its latest updates on growth and inflation this week. And favorable data, meaning resilient but not abnormally strong growth, coupled with softer inflation, would allow market bulls to ride the goldilocks wave. If that's the case, we could see the stock market rally continue and expand into sectors other than technology stocks. The equally weighted S&P 500 Index could try to catch up with the tech-heavy S&P 500. Otherwise, if growth is resilient, but inflation rises in a way that is worrying for the Federal Reserve (Fed) expectations, we could see profit taking and a downward correction in the main US indices, and selling could spread to other major stock markets.

But there are concerns not about the strength of US growth but about the path of inflation. The US economy is expected to have grown 3.3% in the fourth quarter, down from 5% a quarter earlier, but still very strong growth for an economy that has experienced the most aggressive rate hike cycle in its modern history. And the core PCE – which excludes food and energy prices – is expected to increase the most in a year. Three- and six-month inflation, which recently fell below the Federal Reserve's 2% target, is also expected to rise above this 2% level. A spike in inflation is not good news for Fed dovishers, who already abandoned expectations that the Fed would cut rates in March and then May, and are now trimming expectations for a June cut. The expectation of a Federal Reserve cut in June has a probability of around 60% before this week's inflation numbers are released. This probability was around 70% yesterday.

US GDP data will be released on Wednesday and inflation on Thursday. Before that, today we will have information on durable goods orders, housing prices and the Richmond Fed manufacturing index. Ready.

It's right around 4.70%, a bit below the 4.30% level. Yesterday's 2 and US bond auctions closed with higher yields as supply was plentiful in both government and corporate bond sales. The Vanguard Intermediate-Term Treasury ETF posted the biggest weekly inflow on record as investors continued to lower their Fed cut expectations on fears that higher-than-expected inflation read this week could ruin the mood of the Fed. market. The weakening of the Federal Reserve's expectations caused capital outflows from short- and ultra-long-term bonds towards medium-term securities.

And speaking of inflation, inflation in Japan fell to a 22-month low. The Bank of Japan (BoJ) is in no rush to raise rates this April. USDJ/PY is comfortably approaching the 150 level, while consolidating near ATH levels.

In the case of commodities, support was found yesterday near the 100-day moving average, but appetite remains insufficient to drive the price of a barrel to the level of $80 per barrel and above. remain under pressure as investors remain reluctant to buy the dip, even near current oversold levels. Iron ore prices, on the other hand, fell to the lowest levels since November, warnings about China's inability to boost its real estate sector despite stimulus.

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