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Market Wrap
The headline risk today was from the US CPI data. The consumer price inflation beat market analysts’ expectations coming in at 4.2% year-on-year and over 2% more the Federal Reserve’s target rate. The high print was the largest reading for 13 years, with rising prices of goods and services mainly reflected in energy, used cars and trucks, computers, televisions, furniture, computers, and airline fares.
The base effect in the rise in airline tickets comes after they fell sharply during the pandemic and are now recovering as the US economy open. Used-vehicle prices shot up 10% as bottlenecks in new car production increase due to a lack of microchips for new vehicles, preventing dealerships from meeting demand.
Fed Chair Powell has said that the FOMC are willing to let the economy run hot for longer, and that they will need to see consecutive months of above 2% inflation as well as an improving employment situation before they change their monetary policy. The last jobs data report was very disappointing, but the markets concerns are that the Fed will have to bring forward the tightening of monetary policy early.
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The Nasdaq, S&P500 and Dow Jones Industrial Average all fell with the Nasdaq finally undoing the entire month of April’s price action on concerns that the value of future earnings will diminish.
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The US dollar has risen in line with the appreciation in the benchmark US 10-year yields. The next significant pivot level for the green back is the previous support from 17th March 2021, which acted as resistance at the beginning of May. As the dollar jumped higher the EURUSD and GBPUSD have come off from their recent highs but remain high above their 50-day exponential moving average.
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The ActivTrader sentiment indicator shows the traders reducing their short position in EURUSD, but the GBPUSD sentiment is increasingly more bearish, with 69% of traders short the pound.
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The USDJPY has started to move away from its 109.00 magnetic level. The rise in US inflation, which results in higher interest rates compared to a declining Japanese economy, means the trend higher could be for longer. USDJPY prices compressed during March, which then saw the range expand in April, leaving the next move to be a trending one.
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The price action in Oil came off its highs, having been one of the major reasons for the rise in inflation, the commodity prices quickly self-regulate with higher yields and higher nominal dollar amounts. Today’s move higher in oil was in part due to the market reacting to the EIA data, which showed US crude oil inventories declining for the second week by 0.427 million barrels. The price of Oil goes up when the market is tight, though there are still concerns around the overall crude oil complex as India is still dealing with worsening COVID-19 cases.
Tomorrow’s calendar has some important Australian housing data during the Asia-Pac session and then the US continuing jobless claims and PPI data in the NYC session.
