The January US CPI report was yet another signal that the US economic expansion could  experience a surprising reacceleration in January and that the path of consumer inflation towards the target level of 2% will be not so predictable. It was naive to think that after the 500K jobs added in January, considering the relationship between hiring and consumer prices, the US inflation would continue to slide at a rate that would beat projections, so it is safe to say that markets were ready for moderately hawkish surprises in the report. The reaction of S&P 500 futures, following the release of the report, clearly shows this:

The price formed a classic “saw” following the hawkish surprise in the report (core inflation +5.6%, forecast +5.5%, headline inflation +6.4%, forecast 6.2%). However, Treasury yields traded slightly higher after release of the report, with the 10-year bond yield up by about 3 basis points:

This suggests that the bond market decided to price in a slightly higher  fed funds rate following the release of the report. Considering that another rate hike of 25 bp is already factored into asset prices, the key uncertainty is whether the Fed will continue to raise further, namely, whether there will be another rate hike in 2Q23. Based on the momentum in the US economic surprises that we’ve seen in January, the market's bias to price two more rounds of tightening instead of just one may be strong, so the influence of the discount rate, the factor that puts a downward pressure on risk asset prices, is likely to increase. That is why it may be tactically advantageous to take a short position in the broad market and expect equities market to weaken (on the back of a rise in the risk-free rate) at least to a potential level of support. In the case of SPX, this is a sloping line that was earlier the main resistance line in a bearish trend (3950-4000 area):

The US retail sales report for January is due tomorrow, and  it’s another important piece of US economic data that will shed light on which of the factors will dominate the risk assets in the near-term – discount rate or growth outlook. Headline reading is expected to rise by 1.8% in January, with sales excluding cars up by 0.8%. If sales exceed forecast, US equities may bounce up for a short time, however, a reading below forecast is likely to accelerate decline towards support level discussed earlier.