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  • richard evans

US inflation above 9%, 1% rate rise on the table

Good morning

US inflation didn’t quite reach the 10.2% level that the fake news story suggested, but at 9.1% it still came in higher than expectations, the subsequent USD rally was enough to send EURUSD down through parity as talk of a possible 1% rate rise from the Fed did the rounds. A slightly odd bout of US dollar weakness followed later in the afternoon which saw EURUSD trade up to 1.0120 and GBPUSD to 1.1965, but it didn’t last long and both are now back within 20 pips or so of the post-US CPI lows at 1.0020 and 1.1845 respectively. Feds Mester, Daly and Bostic have all said a 100bps rate rise is possible and I’d expect more Fed officials to suggest the same as and when they speak. Feds Waller speaks this afternoon, lets see what he has to say about it.

USDJPY followed in similar fashion yesterday, first trading higher from 137.00 to 137.70, then falling back to low 137s but overnight and this morning it has pushed higher to reach 138.70. Look like we’ll have a chance to see whether 140.00 really is a line in the sand for the Japanese authorities.

Bank of Canada surprised with a 1% rate rise yesterday to 2.5%. A 75bps move had been expected. USDCAD had moved up to 1.3060 after the US CPI number, it then dropped to 1.2940 on the rate announcement but has now climbed back up to 1.3020. BoC had recently talked of a 3% target for rates and the market now seems to be pricing in a 50bps move in September although I’d think a 75bps must surely be possible. Why would they stop at 3% when inflation continues to climb?

Penny Mordaunt has emerged as the favourite to be next PM. I must confess I don’t know much about Penny, other than her initials are PM which makes life easy. I looked her up and found that she appeared on a reality show about diving called ‘Splash’, on which she managed a terrific belly flop, she has also been captain of HMS King Alfred, which sounds grand except apparently that is not a ship but a training base for Royal Navy reservists. Anyway she is now odds on favourite with Sunak and Truss lagging behind.

Another election in Italy looks likely as 5-Star said they will not participate in the government confidence vote today, which puts the ruling coalition at risk. In better news, there is a slim chance Ukraine and Russia have reached an agreement on letting grain exports through the blockaded ports. This talk of food shortages did make me think, for years farmers have been paid by EU to not farm their land. Perhaps now those farmers should encouraged to return to growing crops.

Strong Aussie unemployment numbers overnight gave a little support to AUD, with AUDUSD trading from 0.6740 to 0.6785, it now trades 0.6750. AUDNZD pushed up from 1.1025 to 1.1070, while GBPAUD moved lower from 1.7600 to a low this morning of 1.7470, before recovering slightly to 1.7520.

The US are perhaps catching up in the race for hypersonic weapons after a successful test of its air-launched ARRW missile yesterday. It has lagged behind Russia and China in the development of these weapons but this new test, together with a successful test of a ground based system, puts the US back in the race.

I must mention Covid and the alarming jump in infection rates. I must also mention the sharp rise in hospitalisations with some 2000 people being admitted each day and the seven day average is now very close to the levels we saw around the turn of the year. No one wants to see a repeat of lockdowns but if hospitalisations continue to rise there must be a chance we will have to see some controls put in place. I expect Covid numbers to rise sharply over the summer, there must be no doubt that holidaymakers will board aircraft knowing they are positive but unwilling to postpone their holidays. Be careful…

Finally, thanks to those who asked and sorry for not updating sooner. I am pleased to say my eldest son passed his driving test on Tuesday. I haven’t yet dared look at insurance costs, but he’s now heading off the Greece with a bunch of mates so I’ve got a week or so to sort that out. Its not going to be cheap, that’s for sure.

- 10.00 EU economic growth forecasts

- 13.30 US initial jobless claims, PPI

- 13.30 CAD manufacturing sales

- 16.00 Feds Waller speaks

- 23.30 NZ business PMI

- 02.30 China GDP, industrial production, retail sales

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