Stock Market Does Not React to Economic Data | Daily Market Analysis

Key events:        

• UK – Retail Sales (MoM) (Jan)

This week we saw a lot of important economic data updates for the market. The most important of them was data on inflation, both consumer and industrial. The picture, as it may seem at first sight, is rather bad for risky instruments, but the market is holding on, and in some places, it is even growing. So has the U.S. economy lost its influence on the stock market?

New Economic Data

On Tuesday we were presented with new data on consumer inflation.

It showed us a decrease as everyone expected, but much slower if we look at the yearly rate. But if we look at the monthly data, we can see that inflation is rising. That is, inflation is going up at the moment, but not down as much as it should be.

Inside inflation itself, we can see that its growth is provided by the energy sector, which shows a high rate of inflation, well as the food sector, though already more modest figures.

Further, we have got the statistics on Retail Sales, which is a very important metric reflecting the state of the economy in general.

There is also an unexpected surge of activity on the retail side, and it is much higher than expected. Such a picture can't be conducive to lower inflation. Also, New York State shows us a strong increase in manufacturing activity, much higher than expected. Not a big deal, but still.

And yesterday we had a global economic data update:

Industrial Inflation, PPI. Here we see a slowdown in the rate of decline, as well as in consumer inflation, in annual terms. The data is worse than expected. Every month, we see a strong increase in inflation, versus the expected decline.

• Philadelphia's state manufacturing index shows a strong slowdown in that state's economy. Philadelphia is not like everyone else.
• The housing market. There is obviously a slowdown here, as both the number of building permits issued and the number of construction starts already underway are in big decline. Powell will be happy about that. Wait for a reflection on the labor market.
• Labor market. It is still strong - there are fewer than expected claims for unemployment benefits.

Impact on the stock market

All in all, all of the above does little to encourage risky assets to start rising. After all, a bad picture of inflation will push the Fed to increase the key rate above the planned level of 5.25%. Already today market participants are predicting an increase to 5.5% at the June FOMC meeting, with a fairly high probability.

And what about the market? Nothing - stands still, even tries to grow despite everything presented this week. The cryptocurrency market, represented by the main cryptocurrency Bitcoin, in general, showed us overcoming the local high in one sharp jump.

Well, we will sum up the results of the week on Monday by looking at the weekly candlesticks across the underlying metrics. But so far it looks like the market took a break from the economic data and went its way. Most likely, it just seems that way to us. After all, the economy is a very large and inert system. Any event has a serious time lag. So today we have witnessed another such lag. Most likely, in the near future, the market will get another "cold shower" in the form of a correction.

Moreover, the whole current run was in a state of dehydration – liquidity on the market was rather low all this time.