There is much anticipation for today’s data. The market reaction to January’s shows how important these macroeconomic data have become: for the Nasdaq, last week was the worst week since the beginning of the year.
In fact, it was Jerome Powell himself who said that the trajectory of rates will be set by what comes out of the macroeconomic front.
Tuesday’s inflation reading will be followed by consumption: consensus expects retail sales to have risen nearly 2%, from -1.1% previously.
Good news for Europe, where the European Commission has warned that inflation will fall below 3% in 2024.
Today’s data is decisive
As I’ve written in previous articles, the rise in the markets is due to the reopening of China and the strength of Europe, thanks to the end of the energy crisis with the collapse in gas prices.
But the effect is about to end as macroeconomic data, especially in the USA, are coming out far below analysts’ forecasts. At the same time though, high inflation continues to make headlines.
Unlike the ECB, which for now is accommodating due to the conflict in Ukraine, the FED is and will be more aggressive.
That makes the situation unsustainable in the US, with a recession leading to a drop in corporate profits to come soon.
We will therefore soon see the real collapse of the market.
Today, I expect a CPI number above analyst forecasts that will send the market down.
The ideal instrument in these cases is the , also known as the fear index, which uses options on the as underlying. The correlation between the two indexes is negative: if the S&P 500 goes up, the VIX goes down and vice versa.
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Disclosure: I have a position in gas with an average bid price of 3.4, a buy position in the VIX and a US stock. I’m suffering on gas, but I knew that with ‘hot’ weather, prices could go into the 2.5 area as in 2020, and it’s also an instrument with a very high standard deviation. I am ready to buy a share in the gas sector with great potential plus further VIX contracts which could lead to a price rally at any moment.
