Written before the May CPI announcement

Tonight at 8:30 PM, the U.S. May CPI data will be released, and the market's main focus is on the broad CPI, which is the CPI year-on-year rate. The previous value is 3.8%, and the market expectation is 4.2%, with the Cleveland Federal Reserve's expectation at 4.18%, which rounds to 4.2%.

This means that the market believes inflation in the U.S. will return to the 4% era. What does this signify?

This is the highest value since May 2023, and it represents a continued decline in inflation that the market has been trading over the past year, which may be re-adjusted.

What the market fears most now is that inflation has not fully come down, but the economy is not poor enough to necessitate immediate interest rate cuts. This puts the Federal Reserve in an awkward position where it wants to cut rates, but inflation does not allow it. It wants to continue suppressing inflation, but high interest rates would also stifle the economy and risk assets.

So tonight's CPI can be simply stated.

If CPI is above 4.2%, that would be clearly negative.

The market will reprice its expectations for rate cuts this year. U.S. Treasury yields and the dollar will likely react first, and assets like the Nasdaq, AI, U.S. stocks, gold, and Bitcoin will face pressure. Especially Bitcoin, which is most concerned in the short term about liquidity tightening. Once the market thinks that rate cuts will be delayed, ETF buying and risk appetite will be affected.

If the CPI is basically in line with 4.2%, it is also hard to say it's good news. Because a CPI above 4% is inherently difficult for the Federal Reserve to be at ease with.

If CPI is below 4%, then the market may finally breathe a sigh of relief. Of course, if Trump can achieve a comprehensive ceasefire with Iran or at least the opening of the Strait of Hormuz before the CPI is announced, that could also help.

Furthermore, today’s CPI might make the trustworthy Federal Reserve Chair Powell very uncomfortable.

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