Why the Nasdaq appears set to outperform on an inline CPI print

The wait for US CPI data is almost over. If anything the events over the past 24 hours have intensified the anticipation of a “hot” print this evening, as surging PPI figures in China yesterday were followed up by inflation upside surprises in Mexico and Brazil.

Uptrend 2

For the record, the expectation is for core US CPI to increase by 0.4% m/m in May after a +0.9% increase in April. This would lift the year-over-year rate for core CPI from 3.0%, to 3.5%.

Headline CPI inflation is expected to rise by 0.4% m/m in May, compared to +0.8% in April. This would lift the year-over-year rate from 4.2% to 4.7%.

Headline CPI is expected to peak in June, but to remain elevated in the following months, as the economy works through the transitory inflationary pressures related to the reopening.

If core CPI was to exceed consensus expectations tonight by a significant margin and by that, I think 0.8% or higher, US yields will move higher as will the US dollar, as markets reprice forward expectations for Fed policy to adjust.

In contrast, the base case of an inline or slightly higher print (0.4% to 0.6%) is unlikely to have a lasting market impact, as the focus turns to next week’s FOMC meeting, followed by payrolls data for June.

Catching the eye this morning, the S&P500 ending fractionally lower on the day while the tech-heavy index, the Nasdaq finished the day slightly higher against a backdrop of lower US 10 year yields.

Lower yields are supportive of tech stocks and the Nasdaq, ahead of the value-rich S&P500 index whose members benefit from higher yields.

Learn more about trading indices

After a strong run higher during 2020 the Nasdaq has underperformed the S&P500 by over 9% since early February 2021, as viewed on the chart below.

An inline US inflation number tonight that doesn’t ruffle the feathers of the bond market, would set the scene for a period of Nasdaq outperformance that helps the ratio retest and break the February 3.50 high.

Why the Nasdaq appears set to outperform on an inline CPI print

Source Tradingview. The figures stated areas of the 10th of June 2021. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

More from Equities

Disclaimer

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.