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Market Wrap
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Inflation data from Canada surprised to the upside this afternoon with the month-on-month headline CPI rising by 1.4% and above the 1.0% analysts had predicted. The USDCAD dropped from the 1.29800 level by 50 pips into the London close with the 1.29200 acting as support when the imbalance from the overnight session breakout had been filled.
From the Statistics Canada report, prices continued to rise in May as consumer inflation rose 7.7% over the previous year. From a 6.8% gain in April, this was the largest annual gain since January 1983. In May, the CPI excluding gasoline increased by 6.3%, after increasing by 5.8% in April. The price pressures continued to pinch Canadians’ wallets and, in some cases, affected their ability to pay their daily expenses. May’s acceleration was largely the result of higher gasoline prices, which rose 12.0% compared with April 2022 (-0.7%). Also contributing to the increase were higher hotel and restaurant prices. In May, food and shelter costs remained elevated as price growth remained unchanged year-over-year.
There is to be a change at the top for the Bank of Canada as Deputy Governor Lane is set to retire in September.
Fed Chair Powell is currently in the middle of his day 1 of testimony to the US Senate Banking Committee and is detailing how each of the FOMC meetings will have a possible rate hike of a magnitude appropriate to the incoming data. However, he is not taking anything off the table so 100bps rate hike is possible. The caveat being that any rate hike will have no effect on bringing down the gas and food prices directly. One area of the US economy being directly affected by rate hikes is the house price and we should see these move quickly. A paper produced by the Fed and reported on in the Wall St. Journal shows the US economy faces elevated risks of a recession due to rising imbalances in markets for goods and services, including labour. This paper has the probability of a recession hitting within the next couple of years above 50%.
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The Nasdaq has reacted favourably since the futures open, and Powell’s testimony began. I am just waiting to see if there is a breakout and continuation to the upside with 11868 being my target today. The trade higher is based on the Initial Balance breakout which would be from 11720, with the highs from last Thursday the first target and where I would expect to see an acceleration through the resting stops that will be found there. The Nasdaq is trying hard to go green and follow the DJIA and S&P500 higher. The European, Asian and Antipodean indices have ended their sessions in the red. If we were to get a boost from today’s testimony in the US session, there is a chance that the momentum lifts the rest of the markets tomorrow.
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Brent had been pushing lower and at the start of Powell’s testimony was around 3% lower on the day. The energy markets have found a bid over the last couple of hours, so we must wait and see where they land at the close tonight. Resistance between $110 and $112 in my opinion holds unless the Fed make the US dollar collapse today.
