Inflation Prints - US and India - Can they move the markets ????

Hi, Just been very caught up with some personal work and hence not had a chance to write.

Today's day is lined up with a host of data releases.

India -

March CPI Inflation consensus estimates call for a reading of 5.80% following previous 6.44%. My own estimates call for a reading of 5.65%. The disinflation is lead by fall in prices of edible oils, cereals and vegetable prices. Core inflation has been sticky and will be keenly watched for direction of monetary policy. The market is currently pricing in 6.50% - 6.75% policy rate through this year followed by 2 rate cuts in 2024. Unless the data materially surprises on the upside, reckon the reaction to be muted as the evolving inflation trajectory is projected to be lower. RBI projects FY 23 - 24 inflation at 5.20%. Based on the inflation projections, real Rates are in positive territory.

March Industrial Output is estimated to grow 5.10% yoy

US -

YoY US CPI Inflation (NSA) and YoY Core CPI (NSA) is expected to decelerate to 5.20% and 5.60% respectively. Monthly (SA) data is expected to show headline CPI at 0.20% and 0.40% respectively.

How much of a market mover will be the headline CPI data be? In the press release following the prior FOMC Rate decision, Fed Chair Powell had mentioned that the events surrounding the banking crisis is likely to result in tightening credit conditions for households and businesses and thereby weigh on demand. Such a tightening in financial conditions would work in the same direction as rate tightening. The recent data released by the Federal Reserve weekly on the bank credit by commercial banks shows the largest decline since 1973 ( data available) in bank lending in the 2 week period between 15 Mar 23 - 29 Mar 23 at USD 310 bn.

So a blow off number could possibly see market repricing interest rate else barring a short spike don't see much action. The market is currently pricing in a 74% probability of a 25 bps hike in the next policy and cumulative 60 bps of rate cuts by end of 2023 bringing the FFR at 4.40%.

Looking at the softening of data in recent times and the anticipated correction in housing price data, don't see the case for a sharp build up in interest rate expectations.

US FOMC Meeting Minutes are also scheduled for release today.

Happy Trading !!

Comments

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