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US CPI is falling but can it drive a breakout on US futures?

US inflation is falling but remains stubbornly high, leaving the Federal Reserve on pause for now. April’s CPI data provided mild relief, but it wasn’t enough to drive a breakout in US equity futures, which continue to face resistance at key levels.

US CPI Is Falling But Can It Drive a Breakout on US Futures?

Central banks regard inflation as a critical factor in monetary policy. With signs of recession and banking stresses, the Federal Reserve seems poised to pause rate hikes. A trend lower in inflation may support this stance, with the April CPI providing clues, but can this shift drive a breakout in US equity futures?

Stubborn Inflation Will Accelerate Lower in May

Inflation is declining, but perhaps not quickly enough for the Federal Reserve, which remains on pause after its May rate hike. Economic concerns and financial pressures have tempered aggressive monetary tightening. Monthly CPI data suggests headline inflation could fall sharply in May and June as higher 2022 figures roll out of the calculation. Estimates from the Cleveland Fed’s Inflation Nowcasting project headline CPI at 4.4% in May and 3.9% in June. Core CPI, however, remains more resilient, with a projected decline to 5.2% or 5.0% in the coming months, keeping the Fed cautious and unlikely to consider rate cuts just yet.

April CPI Drives a Dovish Reaction

April’s CPI data showed headline inflation easing to 4.9%, slightly below expectations, while core CPI matched forecasts at 5.5%. The data solidified current market positioning, with Fed Funds futures pricing in a peak rate and tentative rate cuts toward year-end. This mild reaction suggests that while inflation is cooling, it wasn’t a decisive moment for markets.

Can US Futures Finally Break Out?

The lack of decisive inflation data has reflected in equity futures. The E-mini S&P 500 futures remain capped by resistance between 4145 and 4208, a barrier that has held throughout 2023. Despite hopes for earnings season to push markets higher, a significant downside surprise in inflation data would have been needed for a breakout.

E-mini NASDAQ 100 futures have also struggled with resistance at 13349/13370. Although the technical indicators show an upside bias with an uptrend channel and positive RSI configuration, the bull run has faltered in recent weeks. A breakout above 13370 could open the path toward the August 2022 high of 13740 and potentially lift S&P futures as well. For now, the resistance remains intact, and the market looks to big tech stocks to sustain momentum.