【MACRO Alert】Expectations of fluctuations before the release of CPI data, consumer surveys reveal optimistic sentiment!

The Federal Reserve Bank of New York's May consumer survey reveals that American households' optimism about the stock market has reached a three-year high, with the probability of stock prices rising in the next year expected to be 40.5%.

This optimistic sentiment is prevalent among people of different ages, educational backgrounds, and regions. The net worth of American households reached a historical high in the first quarter, and the continuous growth of the stock market has further strengthened consumer confidence. 78.1% of respondents expect their financial situation to remain stable or improve in a year, which is the highest proportion since June 2021.

However, the financial blog Zero Hedge points out that respondents seem not to have taken into account potential future economic challenges, especially if the next government takes office and the Federal Reserve and Congress may not continue to support the stock market, leading to a significant drop in stock prices. In terms of inflation expectations, data from May show that consumers' expectations for inflation over the next year have slightly decreased from 3.3% to 3.2%, while the three-year inflation expectation remains at 2.8%, and the five-year expectation has risen from 2.8% to 3.0%.

At the same time, traders are preparing to face market volatility that may be brought about by the expected changes in the United States and the Federal Reserve's interest rate decision on Wednesday. The market expects the CPI annual rate to remain at 3.4%, while the core CPI may slightly drop to 3.5%. Although the interest rate is expected to remain unchanged, the CPI data and Powell's press conference will affect expectations for rate cuts this year.

Stuart Kaiser from Citigroup pointed out that the options market expects the S&P 500 index to fluctuate by 1.25% on the day, which would be the largest fluctuation since March. Mark Zandi from Moody's Analytics believes that the Federal Reserve's financial conditions are favorable. The number of jobs in the United States increased significantly in May, adding 272,000, which met market expectations. Options activity shows the market's expectations for a rate cut, and the Federal Reserve swap trading has factored in a 25 basis point rate cut in November.

These data will provide a reference for the upcoming CPI report. Consumers also predict price changes for various goods and services next year, including a 4.85% increase in gasoline prices, a 5.3% increase in food prices, a 9.07% increase in medical expenses, an 8.45% increase in college education costs, and a 9.08% increase in rent. In addition, they expect the price of gold to rise by 4.8%. Zero Hedge expressed skepticism about this, believing that these predictions may be manipulated to appear more optimistic.

Due to the strong performance of the US dollar, Brent crude oil futures fell slightly in the early morning in Asia. The August Brent crude oil contract price slightly fell to $81.46 per barrel, although it rose compared to the previous trading day. The price of the NYMEX crude oil contract for July also fell slightly, but the closing price increased compared to the previous trading day. On the eve of the Federal Reserve policy meeting, the US dollar index rose to a two-week high, which may suppress oil demand as the cost of crude oil imports increases.

The CEO of Rosneft, Igor Sechin, pointed out at the International Economic Forum that high borrowing costs limit investment in the oil industry and the development of domestic real economy. The US Treasury has tightened restrictions on Iranian oil exports. At the same time, the Iraqi Oil Minister said that negotiations with the Kurdish regional government and international oil companies on resuming crude oil exports have made progress.