US stocks are trading higher Monday ahead of the pivotal US CPI release for January amidst ongoing signs that the US may successfully skirt a recession and achieve a soft landing in 2023. Indeed, stock market operators hope CPI can shed some love on the doves this Valentine's day.
But before we can even think about getting started with that wheelhouse change, markets will need to digest the usual mid-month data dump for an up-to-date gauge of the rude health of the US economy.
However, the degree to which upward price pressures continue permeating through parts of the economy could tell us just how long that string of 25 bp hikes will be trailing further into the year. And it’s those rate hikes, known and unknown, where the balance of risk lies for stock market operators.
Many business contracts typically reset in January, and companies traditionally set new prices, which are seldom fixed lower. January price inflation is also correlated with input cost inflation from the prior year -- which was substantial.
Ultimately the ebb and flows of shifting sentiment tides amid the forever swinging pendulum from hard to soft to any landing are proving to be one of the more challenging aspects for investors to navigate this year. Indeed, if we do make a soft landing, it will not be pain-free.
I don't think this Fed expected financial conditions to ease as much as they have, but as long as inflation keeps trending south, I'm not sure they will object too much. To be sure, this only ups the ante for CPI.
The US dollar is weaker amid better risk sentiment and as fast money traders perform the usual housekeeping duties by reducing risk ahead of Tuesday's US inflation print.
Oil prices are off intercession highs on a report that the Biden administration plans to sell more crude oil from the Strategic Petroleum Reserve. But with oil prices sitting in the middle of recent ranges, investors know the Whitehouse can only tap reserves so often 'til the well runs dry.