CPI Preview: What If There Are No Rate Cuts in 2024?

 | Apr 10, 2024 07:04AM ET

  • All eyes turn to the US inflation data, due to be released later today.
  • Expectations include a slight decrease in core CPI and a marginal increase in overall CPI.
  • Amid uncertainty about rate cuts, defensive portfolios, and rotational strategies seem prudent.

The US inflation data is set to be released today, which is by far the week's most important event.

Estimates suggest we'll see both monthly and annual declines in the core CPI component, while the overall CPI component is expected to drop on a monthly basis and show a slight uptick annually.

Here are the specific expectations:

  • Annual Core CPI: Expected to decrease slightly from 3.8 percent to 3.7 percent
  • Annual CPI: Predicted to rise from 3.2% to 3.4%
  • Monthly Core CPI: Anticipated to drop slightly from 0.4% to 0.3%
  • Monthly CPI: Expected to decrease slightly from 0.4% to 0.3%

In terms of asset classes, if the data falls as expected, certain sectors may see revaluations. These include:

  • Small Cap
  • Bonds
  • Precious Metals (Gold/Silver Futures)

It's common to see treasury yields decline as an initial reaction to lower-than-expected CPI figures (and vice versa).

In Italy, however, there is a saying: "Canta e suona" (that guy sings it and plays it himself), which means when someone tells stories that only they believe. Well, the market seems to me to be singing its own song about rate cuts.

So, we must consider: What if things don't go according to plan? What if, for instance, there's no rate cut in 2024 because inflation hasn't been tamed yet?

It's worth noting that since the end of last year, markets were initially convinced of a rate cut in March (which didn't happen). Now, even in May, certainty keeps falling with odds for unchanged rates at 98.5%.