Headlines:Japan PM Kishida: FX stability is importantUSD/JPY keeps above 125.00 despite more verbal interventionUS March NFIB small business optimism index 93.2 vs 95.7 priorUK March jobless claims change -46.9k vs -48.1k priorGermany April ZEW survey current conditions -30.8 vs -35.0 expectedGermany March wholesale price index +6.9% vs +1.7% m/m priorGermany March final CPI +7.3% vs +7.3% y/y prelimMarkets:AUD leads, EUR lags on the dayEuropean equities lower; S&P 500 futures up 0.1%US 10-year yields down 0.7 bps to 2.775%Gold flat at $1,955.40WTI up 3.9% to $97.95Bitcoin up 1.3% to $40,335The session was quiet in terms of major headlines but there was some decent movement throughout.The bond market continues to be under the spotlight and the selling continued early on but has cooled considerably ahead of the US CPI data release later. 10-year Treasury yields were up to 2.84% but have come down to near 2.77% currently but all eyes will be on what the inflation numbers have to offer in just over half an hour.The dollar was mostly steady as it kept a slight advance against the euro, pound and yen. EUR/USD eased from 1.0880 to 1.0855 while GBP/USD was brought down from 1.3030 to test the 1.3000 handle again. Meanwhile, USD/JPY kept higher around 125.50-70 for the most part despite some jawboning by Japanese officials.In the equities space, European stocks are staying more sluggish following the drop in Wall Street yesterday. But losses have been trimmed as US futures have also pushed a little higher, with S&P 500 futures covering a 0.6% drop early on to be up by 0.1% now.Could this all be pointing to some positioning play for a softer US CPI report? Perhaps. But we’ll see come 1230 GMT.

The February reading was +7.9% y/y and consumer inflation in the US is estimated to jump up further in March to +8.4% y/y. The monthly reading is expected to reflect a rise of 1.2% after a 0.8% monthly increase in February.
In short, inflation is expected to run hot as it has been in the past few months. The Russia-Ukraine war has just exacerbated conditions globally and the recent lockdown in Shanghai certainly won’t help with the situation.
But what is the market anticipation coming into today and where is the action going to be?
Let’s first take a look at the forecast distribution for today’s estimate:

As you can see, there’s quite a skew towards being above the expected +8.4% y/y estimate. While this is just a forecast, it does point to some expectation that there are certain quarters of the market expecting higher inflation numbers. As such, I’d wager anything above +8.7% y/y or closer towards +9.0% y/y to produce a stronger „beat“.
Meanwhile, a reading closer towards +8.0% y/y is likely to help soothe the market a little that at least the inflation ‚blow up‘ isn’t as uncontrollable as feared.
As for the reaction, the bond market is the first place to look at. The recent selling is continuing as yields are running higher and a beat on estimates will surely spur further momentum in that. In turn, the dollar is likely to catch a further tailwind – especially against the yen.
On the flip side, the opposite reaction to the above will apply; all else being equal that is.

Prior 95.7US small business sentiment declines as inflation worries continue to mount. The share of business owners reporting that inflation was their single most important problem was the largest since 1981, some 31% – up 5 points from February. The share of owners raising average selling prices also increased 4 points to 72% in March – a record high. NFIB noted that price increases were seen across all industries.