SP500 Rallies As Traders React To Inflation Data

Key Insights

• The inflation Rate declined to 6% in February, in line with expectations. 
• Traders expect a 25 bps rate hike at the upcoming Fed meeting. 
• Stocks gained strong upside momentum at the start of the trading session.

Inflation Reports Met Analyst Expectations

On March 14, the U.S. reported that Inflation Rate declined from 6.4% in January to 6% in February, in line with the analyst consensus. The core Inflation Rate decreased from 5.6% to 5.5%. The report also met analyst estimates.

On a month-over-month basis, US consumer prices increased by 0.4%, driven by the increase in the index for shelter.

The FedWatch Tool indicates that there is an 82.7% probability of a 25 bps rate hike at the upcoming Fed meeting. While the Fed may decide to leave the interest rate unchanged due to the problems in the banking sector, traders believe that the central bank will stay focused on its fight against inflation.

According to the FedWatch Tool, the federal funds rate is expected to peak at 500-525 bps in May and decline to 425-450 bps by the end of the year. The market’s expectations have shifted in recent days as traders reacted to the problems of several regional banks. The inflation reports met analyst estimates, so the current Fed policy outlook may remain intact.

S&P 500 Rallies At The Opening

S&P 500 rallied above the 3900 level at the opening as traders reacted to the inflation reports. Inflation did not exceed expectations, so traders bet that Fed will be less hawkish.

U.S. Dollar Index made an attempt to settle below the 103.50 level but failed to develop sufficient downside momentum and rebounded towards 103.80. The recent developments were bearish for the U.S. dollar, but it looks like some traders want to take profits off the table after the strong pullback.

Gold pulled back towards the $1900 level as traders took profits after the recent rally. The rebound of the U.S. dollar is bearish for gold markets, and it remains to be seen whether gold will manage to stay above the $1900 level in today’s trading session.

For a look at all of today’s economic events, check out our economic calendar.