Today the market was weak despite its general oversold condition. For a moment we saw new lows but then some buying interest appeared and managed to close the S&P 500 and the Dow Jones Industrials barely positive.
Beneath the surface there was deep selling, with the S&P 500 Cumulative Tick Intraday closing on -8196, the second most negative reading in 10 years.
In a sense this could be interpreted as a positive as intense selling pressure could not manage to drop the market lower.
During the asian session, inflation data from China comes in line with expectations rising 5.5% during May. As of late, chinese inflation was rising rapidly, forcing the central bank to rise interest rates and banks reserves in order to drain some liquidity and control inflation.
Liquidity drainage is usually interpreted negative by the markets and thus, data in line with inflation expectations diminishes the probability of further interest hikes short term.
S&P futures react by rallying 8 points since yesterday's close, breaking out of the resistance zone it got stuck today.
S&P 500 Futures Gains During Asian Session:
As we mentioned in the title of this market commentary, today at 8:30 AM we receive important macro data. We have the "Producer Price Index" which is inflation data and more importantly "Retail Sales".
As you probably know, consumption makes up around 2/3 of the US economy. Lately "Retail Sales" have been dissapointing as consumers have been spending a lot on fuel and food, but little in discretional spending due to rising inflation.
I expect inflation data to come inline with expectations and retail sales probably lower than expected. If the data is slightly negative, I think the market by now has already discounted it. I don't think that worst than expected data will cause a market sell off unless the data is way below expectations.
The trend of macro data has been negative it would be rare to have better than expected numbers. If this happens though, the market due to its deeply oversold condition, could start tomorrow a powerful rally.