A1 Trading Company

April 8, 2024

Key Inflation Data Weighs on Investor Sentiment

Frank Cabibi

Wednesday's inflation report in the US will be very pivotal in how USD-related assets will react for the next month. Higher CPI has investors worried of the Fed who still looks to cut rates at some point this year, but the inflationary trend could determine when these rate cuts come.

EdgeFinder Analysis

We have been talking about oil for some time in these articles, but the attention is well deserved. USOil is now a +10 on the EdgeFinder's score, which is a +3 point move from Friday. COT continues to pile money into the commodity although retail is also long.

We saw good PMI numbers last week (both above 50), and now we are waiting for CPI Wednesday. What could help oil prices move higher would be if we get a higher inflation number. Higher CPI usually means higher prices for oil. Core, however, is excluding food and energy. So we should watch to see what CPI m/m/ and y/y come in at.

Bitcoin is another asset to watch amid the latest inflation report in the US. What usually acts as a hedge against the dollar, bitcoin has been on a tear since the start of this year. Now price has broken above the potential head and shoulders pattern that happened in March. It has also broken above a bull flag pattern on the 1D timeframe.

Wednesday's number will also affect bitcoin's price. Higher CPI will not likely be optimistic for the crypto. Forecasts are saying that Core and the m/m rate will come down while CPI year-over-year will be higher. Similar to the US indices, bitcoin likes a weaker dollar and lower interest rates.

Speaking of indices, let's take a look at the NASDAQ on the EdgeFinder. The score changed by a dramatic 6 point move to the upside after unemployment rate and COT data from last Friday. The scores holding this index back are from inflation, interest rates and Services PMI.

To get a stronger bullish reading, investors will need to see a softer inflation number than what we have seen so far this year. An increase is going to likely hurt optimism in the stock market, especially for the tech market.

Retail Spotlight

Retail's top long positions are on the metals and crypto. The small cap index (Russell 2000) is another majority long positions. The top shorted are the US and UK stock index.

Smart Money Spotlight

Smart Money just bought a considerable amount of the SPX500. They are selling dollar and gold too. Oil and bitcoin still remain in a bullish bias from the smart money category. Smart money is also buying 10 year bond notes betting on lower yields.

Fundamental Spotlight

The Interest Rate Breakdown for the US indices shows us where short term rates are compared to its 8-day moving average. When yields fall below the MA, it's usually a good sign that there is increased risk appetite. Right now, yields are above the MA which suggests concerns of higher rates for longer and possibly higher CPI on Wednesday.

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