The market was focused on the release of the US CPI, which sparked a new set of volatile moves across asset classes.
Which ones ended up in green and which ones in red?
Somewhat weaker than expected US inflation numbers have reinforced expectations for Fed easing this year, along with downbeat headline retail sales data.
Titles:
- Australian Wage Price Index Q1 2024: 0.8% q/q (0.9% expected, 1.0% previously)
- The Chinese government is reportedly considering buying millions of unsold homes to relieve excess supply
- Rapid change in employment in the euro area for the first quarter of 2024: 0.3% q/q (0.3% expected, 0.3% previously)
- Euro area rapid GDP Q1 2024: 0.3% q/q (0.3% expected, 0.3% previously)
- Eurozone industrial production for March: 0.6% m/m (0.5% expected, previous reading upgraded from 0.8% to 1.0%)
- Canadian Manufacturing Sales for March: -2.1% m/m (-2.4% expected, previous reading was upgraded from 0.7% to 0.9%)
- US headline CPI for April: 0.3% m/m (0.4% expected, 0.4% previous)
- US headline CPI for April: 3.4% y/y (3.4% expected, 3.5% previous)
- US Core CPI for April: 0.3% m/m (0.3% expected, 0.4% previous)
- US Core Retail Sales for April: 0.0% m/m (0.4% expected, previous reading reduced from 0.7% to 0.6%)
- Core US retail sales for April: 0.2% m/m (0.2% expected, previous reading reduced from 1.1% to 0.9%)
- US Empire State Manufacturing Index for May: -15.6 (-9.9 expected, -14.3 previous)
- US NAHB Housing Market Index for May: 45 (51 expected, 51 previous)
- EIA Crude Oil Inventories: -2.5 million barrels (-0.4 million expected, -1.4 million previous)
- Preliminary Japan GDP Q1 2024: -0.5% qoq (-0.3% expected, previous reading upgraded from -0.1% to +0.1%)
- Preliminary Japan GDP price index for Q1 2024: 3.6% y/y (3.3% expected, previous reading upgraded from 3.8% to 3.9%)
Broad market price movement:
Dollar index, gold, S&P 500, oil, US 10-year yield, Bitcoin overlay Chart by TradingView
Market participants appear to be playing it safe ahead of the US CPI release, as the previous trading sessions were mostly characterized by sideways price movement across asset classes.
However, Treasury yields were eager to start falling, as investors were likely calculating the weak inflation report to follow the previous day's Producer Price Index numbers.
Crude oil was also significantly selling off during Asian market hours, despite a decline in private oil inventories as reported by the American Petroleum Institute. The commodity managed to make a significant comeback later, though, when EIA Stocks reported a similarly sharp decline in inventories indicating stronger demand conditions.
The rally was also likely supported by higher risk appetite following the mostly downbeat US CPI report, which revealed that headline consumer prices rose a meager 0.3% month-on-month in April and that the annual CPI fell from 3.5% to 3.4. %. As expected.
Gold, Bitcoin and the S&P 500 rose after seeing the numbers while dollar and US bond yields moved south. The dollar was not helped by US retail sales appearing mostly weaker than expected, with previous reports seeing credit downgrades, while the Empire State manufacturing index recorded a surprise decline.
Forex market behavior: US dollar against major currencies
Overlay of the US dollar against major currencies Chart by TradingView
Volatility was limited for most major currencies early in the day, with traders likely enjoying the calm before the US CPI storm.
However, the New Zealand and Australian dollars were able to start on a strong footing, thanks to news that the Chinese government is considering purchasing millions of unsold homes in a bid to boost the troubled real estate sector.
Dollar traders appear to be bracing for a disappointing CPI reading, as there was an overall bearish bias for the greenback ahead of the New York session. Actual inflation numbers sent the dollar lower when they failed to impress, especially since Uncle Sam also announced falling retail sales and a surprise drop in the Empire State Manufacturing Index at the same time.
The initial bearish reaction faded over the next two hours before resuming the downward trajectory for the remainder of the trading day. The dollar suffered its largest losses against the New Zealand dollar, the yen, and the Australian dollar, while the Canadian dollar lagged behind its foreign currency counterparts.
Potential catalysts coming on the economic calendar:
- Initial US unemployment claims at 12:30 PM GMT
- US building and housing permits begin at 12:30 PM GMT
- US Philadelphia Fed Manufacturing Index at 12:30 PM GMT
- US Industrial Production and Capacity Utilization at 1:15 PM GMT
- FOMC Member Meister's speech at 4:00 PM GMT
- FOMC Member Bostic's speech at 7:50 PM GMT
- New Zealand quarterly producer price index at 10:45pm GMT
Focus may remain on the US dollar today, as the economy prepares to print a few mid-level data.
Among these, Initial unemployment claims reportThis could lead to strong intraday volatility as has occurred in previous releases, especially with the latest non-farm payrolls numbers falling short of estimates.
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