CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Open account
☰
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Open account
✖

Why stocks are shaking Inflation and the SP500

May 13, 2021 1:55 AM

While the return of inflation has been widely anticipated in the wake of the re-opening, there is a divergent range of views as to whether inflation this cycle, will be transitory or permanent.

Central banks including the Federal Reserve are of the view that rising inflation will be temporary. The Fed has also said it has the tools to curb any inflationary pressures.

On the other hand, some think shortages in commodities, consumer goods, and labour markets, combined with money supply growing at 27% per year, (the fastest rate in history) will see inflation return with a vengeance and remain.

Due to the time it takes to build and open new mines and to grow crops, more than likely some inflationary effects will be temporary and some permanent.

Stock markets have thus far mostly preferred to side with the Fed's view of inflation. However, into last night’s US inflation data for April, signs of nerves in US and other developed stock markets had already become apparent.

Last night the inflation number for April 2021 of +0.9% was added, while the number for April 2020 (-0.7%) dropped out. Worst fears were confirmed as the annual rate of inflation rose to +4.2%, significantly exceeding consensus expectations of +3.6%.

Why does higher inflation matter?

In a nutshell, the inflation rate has quickly approached the threshold where it will bring forward the “overshoot” the Fed is looking for under its Average Inflation Targeting (AIT) framework. This in turn brings forward rate hike expectations, a scenario that is bad for bonds and bad for stocks.

Thus with another few months of hot inflation numbers coming up as the 2020 base effects are removed, there is good reason to think the sweet spot for equities is in the rear vision mirror and that a rise in volatility is likely.

Learn more about trading indices

Technically, the S&P500’s overnight close below the band of recent lows 4120/00 area, opens up a move towards support at 3900.

Below 3900, the risks are for a test of trend channel support and the 200 day moving average, 3750/00 area. Aware that a rally back above 4120 is needed to negate the downside risks.

Source Tradingview. The figures stated areas of the 13th of May 2021. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.

© City Index 2024