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USD direction to be dictated by US CPI inflation numbers this afternoon

Good morning

 

The markets shrugged off a higher than expected headline US PPI reading yesterday.  On the face of it, it was somewhat surprising that USD lost ground to GBP and EUR, reaching 1.2590 and 1.0825 in the afternoon.  However closer inspection shows the previous months reading were revised lower which took the shine off the most recent months numbers.  As I type we are pretty much at the highs in GBPUSD and EURUSD, now 1.2600 and 1.0830, the slightly softer US dollar also helping to bring USDJPY lower, now at 156.00, GBPJPY remains up in the mid 196’s.

 

Feds Powell spoke later in the day and talked of a cooling economy, lower wage growth and lower demand for workers.  He referred to the latest PPI data as ‘mixed’ and downplayed the idea that the next Fed rate move would be higher, although he, and a couple of his colleagues, stressed the usual theme that rates will be high for longer, given the reluctance for inflation numbers to move lower.  Feds Mester went so far as to say that progress is curbing inflation had halted although she too drew the line at raising rates further. 

 

This afternoon brings the latest US CPI inflation numbers, I’m never sure if the likes of Powell see these numbers early, if he did then he certainly didn’t go out of his way to indicate any significant let up in the inflation rate.  The market is looking for a dip in the headline rate from 3.5% to 3.41%, and a drop in core from 3.8% to 3.6%.  Higher energy prices could well have impacted the monthly reading.

 

We will also have EU GDP this morning, no major market impact expected.  Recent comments from ECB officials have supported the idea of an ECB rate cut in June.  They would clearly like to do more but I think they’ll want to see the impact of any rate cut before pushing for another.  While they say they don’t need to move in unison with the Fed, it is clear they will have an eye on Fed rate expectations and perhaps even the level of EURUSD when looking at rate moves beyond June.

 

Nothing out of the UK data-wise today but Bernanke will be addressing Parliament following his recent Bank of England review. This is unlikely to impact the markets but it may be interesting to see whether we get more details on his suggestions.  Some thinking a Fed-style dot-plot could be on the agenda.

 

The US have imposed wide-ranging tariffs on many Chinese imports.  Biden has said he does not want conflict with China, but does want fair competition. At present, the Chinese government is pouring money into Chinese firms allowing them to sell products at unfairly low prices.  China aren’t happy of course.  Yellen said she doesn’t see the tariffs causing meaningful price rises.  Meanwhile China President Xi is set to visit Putin, just as Biden has confirmed US weapons are set to be delivered to Ukraine.  This comes at a time when Russia have been increasing attacks on Ukrainian positions, with some success.  Talks between Xi, hurt by the latest US tariffs, and Putin hurt by the Wests support of Ukraine, will no doubt have a real  anti-West theme.  GCHQ have warned Russia could be planning attacks on the West, both cyber attacks and more physical sabotage. 

 

Elsewhere, AUD shrugged off a lower than expected wage price index reading overnight, partly due to the previous month number being revised higher.  GBPAUD now 1.8960 having traded up to 1.9030 yesterday.  The latest number will offer some encouragement to RBA but they’ll want to see more data to be sure wage growth is slowing. These revisions to the previous month won’t help.

 

Spurs lost to Man City yesterday evening and in doing so lost the chance to take fourth spot in the Premier League.  The win for Man City puts them in the driving seat to take the title at the weekend, assuming they beat West Ham in the final match of the season.  A draw for Man City won’t be good enough if Arsenal were to beat Everton in their final match.  This evening sees both Chelsea and Newcastle play, they are the two teams below Spurs and wins for each of them would give them the opportunity to finish the season level on points but with a better goal difference than Spurs.  That would add further disappointment to an already underwhelming end to the season.

 

Have a great day

 

-  10.00 EU GDP, industrial production

-  13.30 US CPI, retail sales, Empire state manufacturing survey

-  15.05 Bernanke address UK Parliament

-  17.00 Feds Kashkari speaks

-  20.20 Feds Bowman speaks

-  00.50 Japan GDP

-  02.30 AUS unemployment

 

 

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