By Tyler Durden
From the latest Macro View by Bloomberg commentator and former Lehman trader, Mark Cudmore
Equities Must Fear CPI Now the Fed Put Era Is Over
A surprise in either direction from today’s U.S. consumer price index print is likely to hurt global stocks.
For many years, in the wake of QE, we became used to markets where “good data is good for equities and bad data is good for equities.” The logic was that bad data implied a greater likelihood more liquidity would be pumped into the system, whereas good data inspired confidence that the economic recovery was on track.
Today might mark a turning point where we more frequently trade the opposite dynamic. The Fed has fought so hard to convince investors that the economy can cope with hikes and balance-sheet reduction that it may have boxed itself into a corner. It can’t retreat from its policy path without seriously undermining its credibility.
If CPI misses to the downside, then investors will fear the Fed is making a terrible policy mistake with its determination to raise rates again in December. On the flip-side, if CPI beats, then traders will have to price in a much greater possibility that the Fed follows through on …read more