Yes, it has been that long and pandemic aside, we would not be here awaiting a 7% print in US CPI later today.
So, how did markets look like back then?
- 10-year Treasury yields were at 14%
- S&P 500 index was at 110
- Gold was at $350
- USD/JPY was at 250
In the context of today's levels, it is quite baffling to see how things were trading at the time. Anyway, looking at the report today, I see a couple of scenarios potentially playing out:
- CPI disappoints i.e. <6.6%. Considering the narrative this week, the market will run with the ongoing theme and risk assets are likely to outperform again. That will be bad for the dollar and yen, although I would not expect the reaction to be too extensive unless bond yields also come down further - which will bolster tech stocks and broader sentiment.
- CPI meets expectations i.e. 6.9% - 7.1%. We might see bond yields nudge higher and risk trades a little lower upon the initial reaction but I would expect dip buyers for stocks to come back in as they did on Monday later on in the session.
- CPI beats i.e. >7.2%. That could lead the market to focus back on the narrative centering on rate hikes, supply bottlenecks, rising energy prices, and omicron risks. In turn, that should weigh on sentiment and drag down risk trades after the advance from yesterday. That said, I would expect any retreat to be relatively contained unless 10-year yields threaten 1.80% again.
