U.S. stocks on hold ahead of key CPI inflation data

While investors are increasing worry about Federal Reserve’s next monetary policy actions and particularly on interest rate hikes, this week’s economic and key inflation data coupled with the Fed’s minutes of its last rate decision on March 22nd will give some signals on Fed’s path ahead.

Nasdaq Composite, Daily chart

U.S. stock markets were mostly unchanged Monday, the first trading day after a long weekend due to the Catholic Easter, indicating investors were still weighing and waiting for the coming economic data.

All eyes will be on the U.S. CPI-consumer price index report for March tomorrow Wednesday, which will help determine the Federal Reserve’s rate path ahead, and the release of the minutes from the February FOMC- Federal Open Market Committee meeting on the same day.

Inflation expectations from the Consumer Price Index reading for March are relatively high, with economists predicting that consumer prices rose by 5.2% on an annualized basis and 0.3% month-on-month in March.

Hence, they are expecting core consumer price inflation, which excludes volatile food and energy costs, to rise 0.4% on a month-over-month basis, for an annual increase of 5.6%, up from 5.5% in February.

Adding on the market calculation, we should place also last Friday’s NFP report that showed that nonfarm payrolls increased by 236,000 jobs last month, just shy of the 239,000 called by Wall Street’s forecasters and well above the 200,000 that would have been instrumental in getting the Fed to pause in May.

Therefore, a relatively stronger-than-expected labor NFP report with a persistently strong CPI inflation, combined, is suggesting at the least that the Fed has another 25-basis point hike coming on May 02, which would effectively raise rates to a peak of 5.25%.