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The ranges of estimates are important in terms of market reaction because when the actual data deviates from the expectations, it creates a surprise effect. Another important input in market’s reaction is the distribution of forecasts.In fact, although we can have a range of estimates, most forecasts might be clustered on the upper bound of the range, so even if the data comes out inside the range of estimates but on the lower bound of the range, it can still create a surprise effect.These forecasts are produced by investment banks and research firms like Goldman Sachs, Morgan Stanley, JPMorgan, Barclays and so on.Core CPI Y/Y2.9% (5%)2.8% (28%)2.7% (44%) – consensus2.6% (23%)Core CPI M/M0.5% (4%)0.4% (26%)0.3% (52%) – consensus0.2% (16%)0.1% (2%)The market will focus on the Core figures. We can see that there’s quite a wide range of estimates, so any deviation from the consensus should trigger a market reaction. The bigger the deviation, the strongest the reaction will be.At this point, whatever the data is going to show, the Fed is not going to do anything in January. The question now is whether the Fed is going to cut more or less that the current market pricing of two cuts by the end of the year. Traders are expecting the first cut to come in June once Fed Chair Powell’s term ends, and then another one in December.We recently got some mixed US data, but in general it’s been leaning towards renewed strength. If the data continues to strengthen, we should get a hawkish repricing, at least to reflect the Fed’s baseline projection of one cut in 2026. Today’s data might not change much in the bigger picture unless we get big deviations from the consensus.
This article was written by Giuseppe Dellamotta at investinglive.com.
💡 DMK Insight
Market reactions hinge on forecast accuracy, and here’s why that matters: when actual data deviates from expectations, traders can see significant volatility. If forecasts are clustered tightly, any deviation can lead to sharp moves, especially in sensitive markets like crypto and forex. For instance, if a key economic indicator comes in much lower than anticipated, it could trigger a sell-off in risk assets, while a positive surprise might lead to a rally. Traders should be on the lookout for these forecast distributions, as they can indicate potential market sentiment shifts. Moreover, understanding the broader context is crucial. If forecasts are overly optimistic, it might signal a bubble, while pessimistic forecasts could indicate a buying opportunity. The real story is that traders need to monitor not just the numbers but also the sentiment behind them. Keep an eye on key economic releases and how they compare to consensus estimates. This week’s data releases could be pivotal, so set alerts for any surprises that could shake the market.
📮 Takeaway
Watch for upcoming economic data releases and their forecast distributions; deviations from expectations could trigger significant market moves.
