- Today's spotlight is on the release of crucial U.S. inflation data, anticipated to show a decline in both the overall Consumer Price Index and the core CPI
- Market expectations include a decrease in the annual Core CPI from 3.9% to 3.7% and a drop in the Annual CPI from 3.4% to 2.9%.
- In this piece, we will analyze market scenarios in the event of disappointing or better-than-expected data releases.
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- Annual Core CPI from 3.9% to 3.7%
- Annual CPI: 3.4% to 2.9%
- Monthly Core CPI: unchanged at 0.3%
- Monthly CPI: down from 0.3% to 0.2%
- Small Caps
- Precious Metals
- Bonds
- The US Dollar
- Foreign markets with lower expected real rates
Today marks the release of the most crucial event of the week – the US inflation data report.
According to estimates from Investing.com's economic calendar, both the overall Consumer Price Index and the core CPI are expected to show a decline on an annual basis.
At the monthly level, markets anticipate no significant change.
Specifically, these are the expectations:
The housing component, specifically the Shelter component, remains a significant question mark. It is a 'lagging' component that, as depicted in the image below, has been on a downward trend for some time. 
And since the Shelter component weighs about 33 percent of the total CPI, then we can well understand how important it is for the downward trend to continue to see steadily declining inflation.
Given the recent front-run of the pivot by the housing and real estate markets, all eyes will be set on this specific part of the reading today.
How to Read the Report
Investors must observe the treasury market as the main thermometer of general reaction to the numbers.
That's because markets will be pricing in the probability of the Fed's first rate cut in light of today's numbers. Remember that the bond market is much bigger than the stock market and often the main driver of investor sentiment.
If the inflation figure comes in lower than expected, the central bank might reconsider its stance on the first rate cut, potentially leading to further market gains.
Hence, higher yields would imply that the market is still expecting a higher cost of capital for longer. Conversely, subsiding yields would imply that the Fed's pivot is ready to start.
In case of good numbers (lowering inflation), interesting opportunities may arise in asset classes that have recently suffered, namely:
Conversely, higher-than-expected CPI indicates that the Fed's job may still have room to run. In this case, assets classes likely to benefit are:
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Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counsel or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple points of view and is highly risky and therefore, any investment decision and the associated risk remains with the investor.