S&P/ASX 200 Index (ASX: XJO) shares are enjoying another strong run today, up 0.57% during the lunch hour.
That puts the benchmark index up 2% so far in this shortened trading week.
And tomorrow is shaping up to be another big day for ASX 200 shares.
That's because while most Aussies are sleeping, the United States Bureau of Labor Statistics will release its March Consumer Price Index (CPI) data.
Depending on just how much, or little, inflation has eased, analysts are expecting some significant moves in US equities overnight. And that in turn will have an impact on ASX 200 shares down under.
The key figure that could move ASX 200 shares tomorrow
Just as in Australia and much of the rest of the world, inflation in the world's biggest economy has been running hot.
And just like ASX 200 shares, the resulting interest rate hikes to tame inflation have pressured US stocks.
February's CPI reading in the US was lower month on month but still came in at 6%. That's well above the Federal Reserve's 2% target range.
But with the odds of a US (and global) recession rising, investors have been increasingly betting the Fed will pause its rate hikes, and potentially turn to cuts later this year.
Whether or not that pause eventuates will hinge on just how fast inflation is coming under control.
A consensus estimate from economists in a Bloomberg survey forecasts that CPI in March will come in at 5.1%.
Should that prove accurate, Goldman Sachs partner John Flood expects stocks to run higher on the news.
Stock market wants a softer print as a hot reading will add more confusion/uncertainty into the equation of what the Fed does from here.
Another hike in May but then aggressive cuts in Q4? This is what Fed fund futures are pricing in ahead of tomorrow's print.
Now Flood is talking about the S&P 500 here.
But if US markets rally on a soft inflation print, ASX 200 shares should get some helpful tailwinds tomorrow. If on the other hand, inflation runs hot, the reverse will most likely be true.
According to Flood, the best scenario would have CPI come in below 4.6%, which he expects will see the S&P 500 close up at least 2% overnight.
The worst-case scenario would see CPI increase from last month's 6% level. That, according to Goldman Sachs, will likely see the S&P 500 fall by at least 2% overnight.
