Limited enthusiasm greeted the start of the week for US stocks, while Bitcoin achieved a new all-time high. Major US indices experienced little change during Monday’s trading session. The S&P 500 saw a marginal decline of 0.11%, with mixed sentiment observed in technology stocks. Nvidia faced a 2% decline, while Google enjoyed a nearly 2% increase. Following post-US jobs data losses, the US dollar recovered, with the US 2-year yield stabilizing just above the 4.50% level and the 10-year yield hovering near the 4% mark. This comes ahead of the eagerly awaited US CPI data release today.

Investors approach today’s US inflation report cautiously, considering various factors suggesting a potential resurgence in US disinflation. Factors include the rise in gasoline prices in February, changes in CPI calculation, and increasing inflation expectations. The New York Fed’s survey revealed a significant increase in 3 and 5-year inflation expectations, with expectations for this year remaining around 3%. This suggests that consumers do not anticipate a significant decrease in inflation levels. A data set in line with or lower than expectations could reinforce expectations for a Fed rate cut in June, pushing US yields and the dollar lower. Conversely, higher-than-expected inflation data could lead to a selloff in US treasuries, an increase in US yields, and a strengthening dollar.

Volatility is expected in equity markets as the Fed’s data-dependent approach emphasizes inflation data more. Historical data shows that over the past six months, the S&P 500 has moved an average of 0.8% up or down following the release of CPI data. This volatility will likely increase as anticipation builds for the first Fed rate cut.

Germany will also release its inflation numbers, expected to show softer yearly and higher monthly figures. The EURUSD retreated from its post-NFP peak amid expectations of more aggressive ECB rate cuts compared to the Fed. Meanwhile, yen traders are analyzing data to justify a potential rate hike in Japan. Bitcoin reached a new record high, driven by massive inflows from spot ETFs and the upcoming halving event. Gold remains near its record high, with potential profit-taking possible on a rebound in US yields following a disappointing CPI report. In contrast, softer yields could encourage another test of the $2200 level.

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