Welcome to Thoughts in the Market.

I'm Andrew Sheetz, Chief Cross-Asset Stragist for Morgan Stanley.

Along with my colleagues bringing you a variety of perspectives, I'll be talking about trends

across the global investment landscape and how we put those ideas together.

It's Friday, June 11th at 2 p.m. in London.

The big event this week, or at least what seemed like the big event, was the monthly release

of US consumer price inflation.

There's a lot of focus on inflation at the moment, and after a surprisingly high reading

last month, yesterday's release has been circled on many investors' calendars for a while.

The number arrived, and it was a surprise.

Once again, inflation came in higher than expected, rising 5% versus year-to-year levels.

That's the highest rate of year-to-year change in the index since July of 2007.

But markets looked at this surprise and shrugged.

US bond yields actually fell, the opposite of what one would usually expect when inflation

is surprisingly high, and stocks rose, even though inflation is often painted as a threat

to equity markets.

So what's going on?

Spending too much time guessing a single day's reaction is a fool's errand.

But we do think there are some important factors to keep in mind, to both help explain

why the market may have been willing to look through yesterday's data, but also what

we need to keep an eye on going forward.

The first, and maybe most important dynamic, comes down to expectations.

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