Pin Drop Silence For Markets Ahead Of US CPI Data. Gold Traders Are In A Zombie Mode

BY Benzinga | ECONOMIC | 05/15/24 03:38 PM EDT

European and US futures are trading cautiously higher as traders wait for the most important economic data for this week, which is the US CPI number. Yesterday, the Fed Chairman, Jerome Powell, displayed his disappointments with respect to inflation and especially its progress over the last few months. Another disappointing reading for the US CPI data could make investors and traders lose their confidence, who are very optimistic that the Fed has no other option but to lower the interest rate as the employment market in the US has started to show weakness.

Yesterday, we saw another positive day for the Nasdaq index, which jumped to a record close and scored gains of 0.75%. The Dow Jones Industrial Average also recovered some of its losses, moving higher by 0.32%, while the S&P 500 index added 0.8%. All of this happened on the back of the US PPI numbers, as well as somewhat hawkish commentary from the Fed Chairman. The thing about the US equity market is that there seems to be some disconnect between reality and what market players are expecting, and this is because inflation numbers continue to show their stubborn nature while the Fed is sending a message that they are comfortable with higher rates, but market players are of a different mind set, and for them, it is clear that the Fed cannot keep the rates where they are. Since markets are addicted to dovish monetary policy, the US equity markets are roaring on the back of this.

The concern here is that if the markets get a reality check, i.e., we get an inflation reading that shows zero to no performance while the Fed shows further disappointment and confirms their stance that rates should stay higher for longer, then the market players have no other options but to face reality and experience heavy losses.

Going into today's important data, the PPI data released yesterday has given us an indication of today's market play. The data could disappoint, which means the inflation reading could exceed the forecast of 3.4% and potentially surpass the previous number of 3.5%. The initial reaction would be massive disappointment, but then hope for a rate cut could surface again, as traders would discount the reading because of the potential threats that higher interest rates could cause to the US economy. On the other hand, market players will greet a better reading than the forecast of 3.4% for CPI y/y with great excitement, potentially leading to further side moves.

Meme Stock

Speaking of further upside, it seems that the meme stock saga is back in full swing, as retail traders have not only shown their enthusiasm towards mainstream names like AMC and GameStop, but in fact, now the focus is also on other heavily shorted stocks among hedge funds. Again, there are no specific fundamentals that can support the current investment thesis, other than FOMO. When retail traders see a headline that a stock is up 20%, they want to throw their money in with the hope that it will do at least five times more. We've seen this practice among speculators before, and we're seeing it again now.

Gold

Gold traders seem to be in a pin-drop silence zone with pretty much no activity. The focus for them is the US CPI data, and the hope is that the economic number will bring weakness to the dollar index, which would be positive for the yellow metal. The weakness in the price can happen if the inflation number shows an encouraging reading, the price weakness can happen; however, if we do not see that, we could still see a further upside as traders may discount the bad reading. We have seen this for yellow metal on the back of the PPI data and the Fed's speech. However, we think that gold traders should think carefully in terms of speculation, and this is because Jerome Powell said last night that there is no rush to change their current monetary policy stance.

The gold price chart below shows potential important price levels that the yellow metal may test today. The red line represents the resistance which the price may test in terms weak inflation data and the green line represents the support zone which the price may test if the inflation data comes hotter than the expectations 

Gold chart by Zaye Capital Markets 

This article is from an unpaid external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.

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