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CPI in focus today
Markets surged on renewed risk appetite after a breakthrough US-China trade truce, while investors brace for US CPI data to gauge the early effects of tariff-induced inflation.
DOW jumps over 1100 points; S&P 500 and NASDAQ post gains of 3.26% and 4.35%.
Germany’s DAX hits record high; Japan rallies, but Hong Kong turns cautious.
April CPI expected to show modest inflation pickup as early tariff effects trickle in.
Fed rate cut expectations for July fall sharply to 41% following tariff relief.
Global equity markets roared higher overnight, fueled by optimism surrounding the unexpected US-China tariff truce. Risk sentiment returned with force, lifting major indices in the US and Europe to multi-month—and in some cases, record—highs.
The DOW Jones Industrial Average surged over 1100 points, while the S&P 500 rose 3.26% and the NASDAQ jumped 4.35%, reflecting widespread investor relief after trade tensions that have plagued markets for months suddenly de-escalated. The rally spilled into Europe, where Germany’s DAX hit a new all-time high, echoing hopes that global supply chains and corporate earnings may face fewer disruptions ahead.
In Asia, the response was more nuanced. Japan’s Nikkei 225 climbed nearly 1.8% in early trading as it caught up to the late US rally. However, Hong Kong’s Hang Seng Index (HSI) slipped into negative territory, a reminder that some regional caution persists as markets await further details and implementation timelines for the agreement.
CPI now takes center stage
With trade risks temporarily contained, attention now turns squarely to inflation. The US April CPI report, due later today, will be the first major inflation print since tariffs were escalated and then frozen. While it may be too soon for the new levies to show up fully in consumer prices, any upside surprise could reinforce the Fed’s hawkish tone and challenge the risk rally.
Consensus estimates point to a 0.3% month-over-month rise in headline CPI, with the core index (excluding food and energy) also seen advancing at the same pace. This would mark a clear rebound from March’s unexpected decline and offer the first real clues about how much pricing pressure the tariffs may be introducing into supply chains.
Economists caution that the initial impact may be muted—many goods likely cleared customs before the duties came into effect—but the trend over the next two months will matter far more for the Fed’s calculus.
Fed repricing: lower cut odds as trade fears ease
The market’s expectations for a near-term rate cut have shifted significantly. Just a week ago, Fed fund futures were pricing in a 74% chance of a July cut. That number has since dropped to 41%, signaling that investors now view the “higher for longer” interest rate regime as more likely in the near term.
This repricing reflects two key dynamics: (1) the removal of immediate trade downside risks, and (2) the potential for inflation to remain elevated due to lagging effects of earlier supply shocks.
Unless today’s CPI data comes in meaningfully above consensus, it’s unlikely to derail the rally that followed the trade breakthrough. However, a hot print could limit the upside in risk assets and keep the US Dollar well-supported in the short term.
