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  • richard evans

US CPI set to hit 40 year highs

Good morning

UK unemployment ticked down to 3.8% this morning, market reaction fairly muted although as I type GBPUS is a little lower at 1.3005 from 1.3030 or so before the release. EUR has suffered a little more with EURUSD down at 1.0860 leaving EURGBP at 0.8345 (GBPEUR 1.1980).

Truth is currency markets have been treading water ahead of the US inflation data due out this afternoon, US 10 year yields are up above 2.8% as the market looks for a headline number somewhere around 8.4%, up from 7.9% last time, which would be the highest level for 40 years or so. The core rate is likely to be around 6.6%. US dollar should remain supported but these high numbers, and Fed rate rise expectations, must be mostly priced in by now.

UK inflation will be released early tomorrow morning, no surprise we are looking for an increase from 6.2% last month to 6.7%. I see BRC retail sales numbers were well down yesterday, I’m thinking that the high cost of living is starting to have a major effect on peoples spending habits.

Austria Chancellor met Putin yesterday, I had said I wasn’t overly optimistic that we’d see any positive news of note from this and indeed Nehammer’s own words were ‘there was no optimistic impression….the offensive in Eastern Ukraine is being prepared on a massive scale’. There seems little doubt now that it is very much a case of when, and not if, we see those attacks taking place and we have to presume that Russia has learnt lessons from its invasion of Ukraine and I would expect any further military action to be more effective. Russia meanwhile warns that Ukraine is preparing new aggression against Russia, helped by British special forces. They are probably right.

RBNZ rate announcement due overnight, a 25bps rise to 1.25% seems to be on the cards, some talk of a 50bps rise but I don’t think that’s likely. NZDUSD currently 0.6825 having struggled up around 0.7000 recently, NZD remains weaker against AUD with AUDNZD at 1.0880, not too far from recent highs. AUD has actually lost ground against GBP over the past few days, GBPAUD now 1.7520 having tested 1.7200 last week, after the RBA rate meeting.

Just a word on gold, despite the stronger US dollar gold has ticked higher over the past week, now $1955/oz having tested that late March highs around $1970 again yesterday. Technical traders are watching that $1965-70 area, a break could see a retest of the $2020-30 levels. I can’t say I’m ready to go long mind you.

Had a wonderful lunch yesterday up in London with the family to celebrate my eldest’s 18th birthday. Despite it being a Monday, the restaurant was busy enough, London seems to be getting back to some sort of normality although lets be honest, Mayfair is hardly the ‘real world’.

- 09.00 ECB bank lending survey

- 10.00 German ZEW

- 13.30 US CPI

- 17.10 Feds Brainard speaks

- 19.00 US monthly budget statement

- 03.00 RBNZ rate announcement

- 03.00 China trade balance

- 07.00 UK CPI, RPI, PPI

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