European and US stock markets bounce back while smart money eye takes caution

The European and US markets are rapidly progressing, shedding all the worries from the previous week's price action. Traders are eager to seize bargains, while others maintain the belief that the current market rebound could be merely a false positive, necessitating caution. Smart money prioritizes the significance of this week's important data and bases their decisions on it.

Stock market today

European markets have started the trading action on a very  positive note as the Stoxx 500 index surged 0.3%, the FTSE 100 index also soared 0.58%, and the IBEX also moved into the positive territory by 0.54%. All of these gains have been accurate at the time of writing. However, what is important to keep in mind is the weekly losses that these indices are sitting on, such as the Stoxx 500, which closed the week with a loss of 2.9%, while the FTSE 100 wasn’t that off from that number.

Important economic data points

Traders and investors are focusing on the positive aspects this week, anticipating the release of significant economic data from the UK, where the Bank of England has initiated the process of interest rate cuts. The inflation data that will be released this week will give them more clarity in relation to the future direction of the interest rate. If the data continues to indicate a cooling off in inflation, the Bank of England may express more optimism, potentially leading to more interest rate cuts. However, if the data doesn't demonstrate a significant positive trend, it could lead to significant market panic. This could lead investors to believe that the Bank of England will hold rates for a longer period or that the next rate cut could be delayed.

We will also be receiving data on inflation for the US. The number is extremely important. On Wednesday, we will release the US CPI numbers, with a forecast for the headline Core CPI m/m of 0.2%, compared to the previous number of 0.1%. The forecast for the CPI m/m was 0.2%, whereas the previous number was -0.1%.

This week's release of the inflation number, according to Connor Woods, Financial Analyst at HowToTrade.com, will set the tone for the markets. Due to traders' nervousness about the US NFP print, markets' price action last week reflected that. If the inflation number also fails to impress the markets, we could see panic creeping back into the market, which means that traders may favour risky assets such as gold, which has experienced tremendous retracement in the previous week.

To conclude

What's important this week are the numbers in the inflation data. Investors and traders have shifted their focus away from the US NFP data as a one-off data point, or they have said to themselves that expectations were perhaps too high. Some believe the Fed should reduce interest rates more aggressively. If the inflation data doesn’t print a more satisfactory reading, then it would mean that the Fed may not be able to press the button on deep interest rate cuts—which means that the first interest rate cut by the Fed may be only 25 basis points, and market players may not like that situation very much. As a result, we could see the markets rolling over again.