Rocky US inventory market faces inflation knowledge check

By Lewis Krauskopf

NEW YORK (Reuters) – A vital inflation report within the coming week might additional rattle an more and more tumultuous U.S. inventory market, with traders nervous about an financial progress slowdown and President Donald Trump’s tariffs.

The benchmark S&P 500 was on tempo for its worst week in six months, whereas the tech-heavy Nasdaq Composite on Thursday ended down greater than 10% from its December all-time closing excessive, confirming it has been in a correction for a number of months.

Traders had been grappling with dramatic coverage change world wide. Trump’s back-and-forth implementation of contemporary tariffs on Mexico, Canada and China exacerbated broad issues in regards to the economic system. Markets had been additionally shaken by Germany’s shock spending plans, which drove a selloff within the benchmark German Bund.

As latest U.S. financial knowledge has disillusioned, one silver lining for shares has been markets factoring in additional rate of interest cuts by the Federal Reserve this yr to account for potential progress weakening.

However Wednesday’s U.S. client value index report might scuttle these expectations if it confirms that inflation remains to be simmering at ranges that pressure the Fed to maintain financial coverage tighter.

“A scorching CPI print will seemingly scare the market,” stated Bryant VanCronkhite, senior portfolio supervisor at Allspring International Investments. “The market nonetheless desires the Fed to come back to the rescue… Till inflation and inflation expectations come down, the Fed is handcuffed.”

Traders are aware of final month’s hotter-than-expected CPI knowledge that noticed inflation rise 0.5% in January, its greatest month-to-month achieve since August 2023.

CPI for February is predicted to have climbed 0.3%, in accordance with a Reuters ballot.

The inflation report might be among the many final key items of knowledge earlier than the Fed subsequent meets on March 18-19. Whereas the central financial institution is predicted to carry its benchmark charge regular at 4.25%-4.5% at that assembly, Fed funds futures point out practically 75 extra foundation factors of easing are anticipated by means of December of this yr, in accordance with LSEG knowledge.

“Equities wouldn’t take pleasure in a scorching CPI print as a result of… it softens that Fed easing view that has been beginning to construct available in the market,” stated John Velis, Americas macro strategist at BNY.

Traders are additionally more and more involved about “stagflation” – slowing progress and rising inflation that’s feared to be a poisonous mixture for a broad vary of belongings.

An elevated CPI report might “convey the ‘S-word’ into play,” Velis stated.

Traders may even concentrate on Washington, as lawmakers wrangle over a spending invoice that will avert a partial shutdown of companies late subsequent week.