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Can the market momentum last?

Can the market momentum last?

The latest inflation report brought some relief to consumers

Richmond Fed President Barking reiterated his fellow Fed officials’ stance on inflation to remain low for an extended period. He favors a tighter monetary policy until inflation reaches the 2% target.

But he didn’t say if the next increase would be 50 or 75 basis points. He referenced employment data and all the latest inflation figures released. Everyone agrees that the latest CPI data is not enough to change the course of monetary policy: in the next publications, a change in the market trend is needed. However, the market is already beginning to bet that the peak of inflation has already happened, which is reflected in market interest rates which, although with some recent rise, remain at the lowest levels of the last two months.

Friday saw the release of Michigan's preliminary consumer confidence index, which came out better than expected but was mixed in the details. Although expectations rose to 54.9 from 47.3, current conditions moved to 55.5 from last month’s 58.1. Inflation expectations were also mixed, with 1-year expectations falling to 5.0% from 5.2% and 5-year expectations rising to 3.0% from 2.9% last month.

In any case, they are encouraging figures for inflation and economic expectations that gave upward momentum to the stock markets one more day.

This week the US Fed will publish the minutes of the last FOMC meeting, where the Fed tightened interest rates by 75 basis points and moved the target rate to "neutral" at 2.5%. Although no one doubts the rate hikes will continue, the market will want to know the result of these minutes since they may give interesting clues about the monetary policy. Two scenarios are possible: either they continue with aggressive hikes or, on the contrary, they can pause the rhythm while waiting for the result of economic data.

Meanwhile, the Wall Street indices continued to rise last week, with the S&P500 up 1.50% on Friday and technically confirming the end of the bear market. Still, many analysts and institutional investors consider this movement is not more than a correction within a downtrend and expect even below the last lows. But, until now, neither the economic data (inflation, employment, earnings season, etc.) showed signs of any deep slowdown in the economy that could cause a movement like that, nor does the technical scenario point to it. Everything seems to move in the opposite direction.

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Sources: Bloomberg, Reuters

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