MW These are the potential 'shock' scenarios around next week's inflation data, says Goldman Sachs
By Barbara Kollmeyer
Critical information for the U.S. trading day
Sell in May and go away? Hope you didn't. The S&P 500 SPX has made a fairly impressive run in early May, up 3% so far after a 4.1% drop in April. Of course, we are only a few days into the month, with no potentially market-moving data until next week, when consumer prices data drops.
It's the CPI that has Goldman Sachs' macro strategist Vickie Chang concerned, as she discusses potential market shocks linked to that inflation data, in our call of the day.
Even if last week's Fed meeting calmed fears about further rate hikes and gave reassurances that the central bank thinks prices are headed lower, "the macro outlook now hinges even more clearly on the inflation trajectory," says Chang, in a note to clients.
"Our view, like the Fed's, is that inflation relief has likely been delayed and not destroyed. But it is on this axis that the macro backdrop now hinges, so next week's CPI print on May 15 is now the next big piece of macro news," she said.
Of course, data that sparks further inflation worry could cause downside pressure on risk assets such as stocks, while inflation relief could have the opposite effect, she says. But the strategist digs a bit deeper with several near-term market scenarios around both sides of that inflation story.
The first discusses a "hawkish shock" for markets, that price in a further "hawkish shift" by the Fed due to more worries about inflation. That will put pressure on stocks and result in rising bond yields, with the dollar climbing and commodities selling off.
The second scenario sees markets pricing in a "dovish policy shock," on inflation relief, offering a rally for stocks and commodities, pressing on the dollar and bond yields. S&P 500 upside and yield downside are standouts here.
In the third, relief over U.S. inflation comes alongside "small upgrades to global ex-U.S. growth," reinforcing a weak dollar and giving non-U.S. stocks a better lift. European and emerging-market equities perform better in this setup, she says.
Scenario four sees U.S. inflation relief alongside "modest worries about the U.S. growth outlook...a potential risk given recent misses in U.S. activity data-U.S. yield downside is reinforced, while moves in most equity markets and dollar crosses are caught between competing forces and are muted as a result," Chang says.
Upside for bonds and other rate proxies such as gold and the yen are standouts in this last scenario, though the Japan currency has already seen a strong run on possible intervention, the strategist notes.
The markets
Stock futures (ES00) (YM00) (NQ00) and Treasury bonds BX:TMUBMUSD10Y BX:TMUBMUSD02Y are going nowhere, as oil prices (CL.1) push lower and the dollar DXY rises.
The buzz
Uber $(UBER)$ will report ahead of the open. Rival Lyft $(LYFT)$ late Tuesday reported a jump in rides and more positive free cashflow, with shares up.
Rivian stock $(RIVN)$ is down after the EV maker posted mixed quarterly results.
Reddit shares (RDDT) are soaring after the social-media group's first results as a public company came in better than expected.
Commercial spaceflight and future space tourists helped Virgin Galactic $(SPCE)$ rack up $2 million in first-quarter revenue.
After the close, Airbnb $(ABNB)$ reports, with April sales from Costco $(COST)$ also due.
Wholesale inventories are due at 10 a.m. Fed Vice Chair Philip Jefferson will speak at 11 a.m., followed by Boston Fed President Susan Collins at 11:45 a.m. and Fed Gov. Lisa Cook at 1:30 p.m.
The Swedish Riksbank cut interest rates for the first time in eight years.
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The chart
Here's one way of viewing oil prices right now - cheap in the eyes of Otavio Costa, macro strategist at Crescat Capital:
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-Barbara Kollmeyer
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May 08, 2024 06:54 ET (10:54 GMT)
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