1. Inflation and Consumer Data Could Support Markets

Markets are expected to remain volatile after an extraordinary week that saw markets surge after remarks from Federal Reserve Chairman Jerome Powell, only to give up the gains a day later when investors started bracing for reality.

With the Fed raising its target rate by 50bps and oil prices surging above $110/barrel, stocks extended their losses for the week, led by a 1.5% selloff in the tech-heavy Nasdaq. With markets now seeing five straight weeks of a selloff in Indices, participants will look toward key inflation data to gauge the week ahead.

2. Inflation Data

The Bureau of Labor is set to report data for the Consumer Price Index (CPI) and Producer Price Index (PPI) on Wednesday and Thursday, respectively. Economists who have projected that inflation peaked in March have a consensus CPI growth projection at 8.1% in April (vs. 8.5% in March). The PPI consensus forecast shows a quicker deceleration at 10.5% vs. March growth at 11.2%.

As consumer purchasing powers continue to get decimated, a deceleration in inflation should provide relief to households. Furthermore, a slowdown in inflation should increase the odds of a soft landing from the Federal Reserve. With markets now pricing a 75 bps hike at a 75% chance in the next meeting, the key data could provide relief to markets.

3. Consumer Sentiment

The University of Michigan is set to release its preliminary readings for the Consumer Sentiment Index for the month of May. Markets are expecting a decline in consumer confidence, with a consensus of 63.6%, compared to 65.2% in April.

While the index had risen 9.8% in April as a result of a stronger economy, it still remains at a decade-low as a result of high inflation, supply chain disruptions, and geopolitical tensions. If the decline in consumer confidence accelerates, markets could start pricing in the probability of accelerated inflation.

4. Bond Markets

Bond markets have seen one of the worst starts to a year, seeing a drop of more than 18%, which is the biggest fall on record dating back to 1973. With the 10-year treasury yields hitting 3% for the first time since 2018 and foreign debt holders leading the selloff, the panic has continued to accelerate through the bond markets. However, markets now view bonds to be in value territory as a result of their high yields and could outperform equities through the rest of the year.

Bottom Line

After a turbulent week that saw significant volatility in stocks and bonds, key data, including consumer confidence, CPI, and PPI, could drive markets.

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