A higher-than-expected inflation reading put another dent in the market’s hopes for interest cuts in the United States.
SP 500 – Daily Chart
The SP 500 shows signs of exhaustion here with another failed attempt to stay above 5,200. Investors should be wary of a further downside correction.
The S&P 500 was lower as investors lost hope in the Federal Reserve’s rapid interest rate cuts. New data shows that the US consumer price index rose by 3.5% per year in March, up from 3.2% in February, higher than the 3.4% economists had expected.
“US inflation came in hotter than expected for the third consecutive month, which killed off the chance of a rate cut in June,” said analysts at Brewin Dolphin.
“This is a highly consequential inflation report given that we have seen a string of stronger than expected data from the US in recent weeks and markets were already unsure whether the Federal Reserve can ease policy as guided”.
After a stronger-than-expected jobs report last week, Federal Reserve officials had already questioned whether rate cuts were possible.
Not only did the latest inflation reading surprise the upside again, but the important core measure, which removes components such as energy and food, also beat expectations.
The latest FOMC minutes will come ahead of the Asian session, and they could lead to further downside in US stocks, which could spill over into indices such as the Hang Seng.
The Chinese inflation reading at 9:30 HKT will be necessary after last month’s 0.7% jump, which helped to offset fears of a deflationary spiral.
Short traders should look for a possible stock correction after the S&P 500’s resistance has held above the 5,200 level.
