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Outlook: The data plate is skimpy today, just jobless claims and PPI. Someone is sure to try to make hay out of jobless claims. PPI is going to undergo the same scrutiny as CPI but we already know its input materials, especially energy and strange stuff like rare earths and specialty ingredients (fertilizer), driving prices. The market is expecting a dip in PPI but even if we get it, it won’t be believed–and rightly so. After PPI, the important data will be in. But instead of any upcoming data, what we need to care about is sentiment toward risk, and that is in the process of going full withdrawn-head turtle. As Bloomberg editor Joe Wiesenthal puts it, “Now the Fed is raising rates, and the meme stuff and crypto and growth stuff is getting crushed the hardest. But the question is why? What's the big deal if the Fed Funds rate goes from 0% to 0.8% or whatever? How does that change the value of Terra or a digital ape? Of course the Fed Funds rate alone actually doesn't matter. What matters is that the big risk-taking cycle is doing a 180, and the rate hikes while important are only… Read More »What’s the big deal if the Fed funds rate goes from 0% to 0.8%?

EUR/USD extended its sideways consolidative price moves in a two-week-old trading range. Concerns about the economic fallout from the Ukraine crisis acted as a headwind for the euro. Aggressive Fed rate hike bets continued underpinning the USD and contributed to cap gains. The technical set-up favours bearish traders as the focus remains glued to the US CPI report. The EUR/USD pair continued with its struggle to gain meaningful traction and has been oscillating in a range over the past two weeks. Spot prices remained well within striking distance of a more than five-year low touched at the end of the previous month amid lingering recession fears. Investors remain concerned that the European economy will suffer the most from the Ukraine crisis, which, in turn, acted as a headwind for the shared currency. Apart from this, the underlying strong bullish sentiment surrounding the US dollar exerted some downward pressure on the major during the latter part of trading action on Tuesday. The USD stood tall near a two-decade high and remained supported by expectations that the Fed would take more drastic action to bring inflation under control. In fact, the markets are still pricing in a further 200 bps rate hike for… Read More »EUR/USD Outlook: Range play intact, bears await US CPI before placing fresh bets

Annual CPI in the US is forecast to decline to 8.1% in April.  Underlying factors driving inflation higher remain in place.  A soft CPI print could cause the dollar to face temporary selling pressure. Annual inflation in the US, as measured by the Consumer Price Index (CPI), climbed to its highest level in four decades at 8.5% in March. On a yearly basis, CPI is forecast to decline to 8.1% in April. Core CPI, which excludes volatile food and energy prices, is expected to fall to 6% from 6.5% in the same period. US Consumer Price Index (YoY) Has inflation peaked in the US? The Prices Paid component of the ISM Manufacturing PMI declined to 84.6 in April from 87.1, showing that input prices in the manufacturing sector continued to rise at a softer pace than they did in March. On the other hand, the ISM Services PMI report revealed that the Prices Paid sub-index climbed to a new all-time high of 84. from 83.8. Moreover, crude oil prices rose more than 3% in April. Just by looking at these figures, it’s difficult to conclude that the 8.5% CPI inflation recorded in March was the peak. Additionally, coronavirus-related restriction measures… Read More »US April CPI Preview: Has inflation peaked?

EUR/USD – 1.0562 Although euro's retreat from last Thursday's 8-day high of 1.0641 suggests recovery from April's fresh 5-year bottom at 1.0472 has possibly ended, Friday's rebound from 1.0483 to 1.0600 in New York and yesterday's fall to 1.0496 at European open suggest further volatile swings above said support would continue before prospect of another fall, below 1.0483 would head towards 1.0472, then 1.0405/10. On the upside, only a daily close above 1.0600 would risk re-test of 1.0641, break, 1.0698/00 later. Data to be released on Tuesday New Zealand retail sales, NAB business conditions, NAB business confidence. U.K. BRC retail sales, Japan all household spending, Australia retail sales, Italy industrial output, Germany ZEW economic sentiment, ZEW economic expectation. Canada leading index and U.S. redbook.

EUR/USD – 1.0562 Although euro's retreat from last Thursday's 8-day high of 1.0641 suggests recovery from April's fresh 5-year bottom at 1.0472 has possibly ended, Friday's rebound from 1.0483 to 1.0600 in New York and yesterday's fall to 1.0496 at European open suggest further volatile swings above said support would continue before prospect of another fall, below 1.0483 would head towards 1.0472, then 1.0405/10. On the upside, only a daily close above 1.0600 would risk re-test of 1.0641, break, 1.0698/00 later. Data to be released on Tuesday New Zealand retail sales, NAB business conditions, NAB business confidence. U.K. BRC retail sales, Japan all household spending, Australia retail sales, Italy industrial output, Germany ZEW economic sentiment, ZEW economic expectation. Canada leading index and U.S. redbook.

Outlook: Payrolls were 428,000 and the unemployment rate, 3.6%. This nearly matches the original March print of 431,000 and beats most forecasts. Some folks are still struggling to disambiguate the Fed’s comments, or rather Mr. Powell’s. Fed-watcher Ip at the WSJ has a spot-on summary: “Employment is the best contemporaneous indicator of the business cycle and it shows no sign of a slowdown. Indeed, job growth remains well above its long-run sustainable pace, suggesting the labor market is not just tight, but too tight. “Moreover, recent gains in labor supply evaporated as the labor-force participation rate ticked down to 62.2% from 62.4%, although for people aged 25 to 54, it only edged down to 82.4% from 82.5%, not far from its pre-pandemic level.” The Journal is kind enough to note in the chart footnote that 2022 data is not really comparable with earlier data. But in the end, the main point we should take away is that the economy is nowhere close to stagnation or recession, if we consider the jobs data has predictive value. We suspect jobs and employment data to be inaccurate, to be polite, and while heed it we must, we like capital investment better. Broadly, capital… Read More »The main point we should take away is that the economy is nowhere close to stagnation or recession

The Fed's 50 bp rate hike is behind us.  Another 50 bp hike is expected next month. The April employment report will do little to calm the anxiety about the “too tight” labor market.  The decline in the participation rate was disappointing and this coupled with decline in Q1 productivity raies questions about the economy's non-inflationary speed limit.     One of the fascinating things about the markets is that sometimes the cause take place after the effect.  This is an interesting way to express the observation that investors anticipate, discount, futures scenarios.  The dollar has been bought and fixed income sold on ideas that the Fed had taken a hawkish turn.  The market now accepts that the Federal Reserve will bring it Fed funds target rate within the range regarded as neutral before the end of the year.  The hikes will be front-loaded with the next 50 bp hikes discounted for the next two meetings (June and July) and a strong leaning for the same in September (~66%).  The balance sheet will begin shrinking next month at roughly the same pace that it peaked in the 2017-2019 experience before ramping up to twice the pace ($95 bln). The week ahead is… Read More »The Week Ahead: US CPI and PPI set to soften

The Fed's 50 bp rate hike is behind us.  Another 50 bp hike is expected next month. The April employment report will do little to calm the anxiety about the “too tight” labor market.  The decline in the participation rate was disappointing and this coupled with decline in Q1 productivity raies questions about the economy's non-inflationary speed limit.     One of the fascinating things about the markets is that sometimes the cause take place after the effect.  This is an interesting way to express the observation that investors anticipate, discount, futures scenarios.  The dollar has been bought and fixed income sold on ideas that the Fed had taken a hawkish turn.  The market now accepts that the Federal Reserve will bring it Fed funds target rate within the range regarded as neutral before the end of the year.  The hikes will be front-loaded with the next 50 bp hikes discounted for the next two meetings (June and July) and a strong leaning for the same in September (~66%).  The balance sheet will begin shrinking next month at roughly the same pace that it peaked in the 2017-2019 experience before ramping up to twice the pace ($95 bln). The week ahead is… Read More »The Week Ahead: US CPI and PPI set to soften

S&P 500 finishes the week moderately lower despite wild swings. SPY -0.34% for the week. Nasdaq finishes lower as high growth tech still not favored. QQQ -1.44%. S&P closes off intra-day lows as some position squaring evident. A lot to get through this week. The equity market had looked to put the worst behind it by midweek when a dovish Powell looked after his equity friends by taking a 75bps hike off the table. This set equities on a charge. It was actually up to the plain-speaking Bank of England to set things straight when they talked in strongly bearish terms about the possibility of a recession. Yields had already begun spiking in the US and the resultant collapse in the pound sterling sent the dollar charging and yields again spiked up. Equities went into full panic mode and have not yet fully recovered. This is despite Friday's employment report coming more or less as good as can be for equities. Earnings (wages) were below forecast while the jobs number showed the still healthy employment market in the US. But at the time of writing the major US indices are down again. Sentiment is terrible, it will take a bit more… Read More »Week Ahead on Wall Street: Employment report to fails to calm equities as bears still in control

The EURUSD pair moved lower from its daily highs but remained somewhat higher on the day, trading at 1.0560 shortly after the US labor market figures. US jobs market remains strong Earlier today, data showed the US economy posted 428,000 new jobs for April, precisely at the March level and higher than the 391,000 expected. As a result, the unemployment rate stayed at 3.6%. However, wage growth slowed monthly, down to 0.3% from 0.5% previously, while the yearly change slipped a notch from 5.6% to 5.5%.  Since the numbers came somewhat in line with expectations, there was no initial volatility. However, the market's medium-term trends are expected to continue since today's numbers have reinforced the Fed's hawkish stance on monetary policy.  However, recent improvements in payrolls and earnings and a lower unemployment rate have not translated into a similar gain in many Americans' financial situations. Consumer price rises have outpaced earnings growth as inflation has reached 40-year highs. According to the Bureau of Labor Statistics, the Consumer Price Index (CPI) in the United States climbed at an annual pace of 8.5 percent in March, the quickest since 1981. Still above 1.05 The key support for the following days seems to… Read More »EUR/USD ticks lower after US jobs data