Markets on the rise ahead of US inflation data

• European markets on the rise after improved eurozone data
• US inflation key, with early optimism likely to be questioned
• Memestock season is back following GameStop and AMC gains

A largely positive start to the day in Europe as traders await fresh inflation data out of the US this afternoon. Fresh economic data out of the eurozone helped ease concerns around the trajectory of the region, with the first quarter growth figure coming in at 0.3% following the fourth quarter -0.1% reading. However, the most notable release came in the form of the industrial production reading which posted an encouraging 0.6%, taking the annual figure from -6.3% to -1%. With the eurozone economy clearly showing tentative signs of resurgent strength, today’s comments from ECB’s Muller that a June cut is very likely provides a welcome scenario where we could see them easing rates as the economy takes on an upward trajectory.

US inflation data looks set to dominate market sentiment going forward, with the dollar heading lower for a third consecutive day today. The apparent optimism seen throughout markets does stand on somewhat unstable ground given concerns over the potential for stubbornly high inflation throughout much of this year. The past three months have seen a total of 1.1% inflation in the US, highlighting the upwards trajectory that makes a return to 2% unlikely for some time yet. Commentary from Jerome Powell yesterday helped alleviate fears of potential additional tightening in response to recent inflation pressures, with the Fed Chair stating that another rate hike was unlikely. Nonetheless, while market appear keen to take the positives from Powell’s latest appearance, it would make sense to remain cautious given the growing likeliness that both CPI and PCE inflation metrics fail to return to 2% this year.

In the midst of all this recent uncertainty, we have inadvertently found ourselves back in meme stock season if recent price action is anything to go by. Rampant gains for the likes of AMC and GameStop have captured the imagination of retail traders once again this week, with the recent pop associated with a short-squeeze after years of dramatic declines. Traders should tread with caution given the experiences of 2021, where dramatic short-term gains gave way to drawn out multi-year collapse for prices. Nonetheless, the reemergence of GameStop bull ‘RoaringKitty’ on Sunday raised hopes that this notorious social media personality could help light a fire under these heavily hit stocks. With AMC and GameStop both expected to open 15% higher at the open, it seems the meme-stock volatility seen thus far this week could continue for some time yet.