SP500 And Gold Pull Back From Session Highs As Traders Digest Inflation Data

Key Insights

• Inflation Rate decreased from 6% in February to 5% in March. 
• Core Inflation Rate grew from 5.5% to 5.6%. 
• SP500 failed to settle above the 4150 level and pulled back. 

Inflation Rate Drops But Core Inflation Rate Moves Higher

On April 12, U.S. released inflation reports for March. The reports indicated that Inflation Rate declined from 6% to 5%, while Core Inflation Rate increased from 5.5% to 5.6%.

The FedWatch Tool indicates that there is a 67.2% probability of a 25 bps rate hike at the next meeting. While Inflation Rate was lower than analysts expected, traders remain confident that Fed will have to raise rates in May. The increase in the Core Inflation Rate is viewed as a more important catalyst compared to the decline of Inflation Rate.

The market’s longer-term expectations remain intact. Traders expect that the Fed will cut the federal funds rate to 425 – 450 bps by the end of the year.

SP500 Pulled Back From Session Highs

SP500 made an attempt to settle above the 4150 level but lost momentum and pulled back. Treasury yields rebounded from session lows as traders believe that another rate hike is inevitable despite falling Inflation Rate. The rebound in Treasury yields served as a bearish catalyst for stocks.

Interestingly, U.S. Dollar Index settled at session lows near the 101.50 level. It looks that currency traders focused on the longer-term outlook for Fed policy, and the rate hike in May has been already priced in by the market.

Gold tested resistance at $2025 but failed to develop sufficient upside momentum and moved back towards the $2010 level. Weaker dollar provided some support to gold markets, but it was not sufficient to push gold to new highs.

For a look at all of today’s economic events, check out our economic calendar.