Despite signs of resilience in the labor market, attention is now turning to worrying inflation and developments in the US banking sector. More and more banks are under pressure, because credibility and trust are increasingly crumbling. As the banking crisis develops, US regulators will eventually be forced to take action, which could lead to more bank failures. PacWest and First Horizon are now in the spotlight.
The process of lowering inflation is expected to lose momentum in the April inflation report, which could delay some prospects of the US central bank rate cut. Headline US inflation figures are expected to grow by 0.4% and 0.3% core in April, following March increases of 0.1% and 0.4%, respectively. Core inflation may have slowed only slightly, but it will begin to decline more rapidly in the coming months, as the housing slowdown reflects falling rents and housing costs, as well as disruptions to global distribution channels and the war in Ukraine that has subsided.
However, such an outcome is unlikely to spread rumors about a possible Fed rate hike in June. Even after Powell refused to rule out the June increase, investors still expect a 90% chance of inaction, with the remaining 10% pointing to a quarter-point drop. In fact, near the end of the year, they expect rate cuts of over 75 basis points.
In order for the price to turn around and start showing a good probability of another increase in June, a strong bullish surprise may be required. However, the data may need to show that the US economy is in better shape than many thought, and the Fed may need to challenge market expectations by raising interest rates in June or by holding them steady over the summer to reverse the full range. to be checked.
St. Louis Federal Reserve Bank President James Bullard confirmed on Friday that the decision to raise interest rates by a quarter of a percentage point is a good step forward.
Speaking at the Economic Club of Minnesota, Bullard also commented on the recent stronger-than-expected Non-Farm Payrolls reading in April. The Fed official stressed that it will take time to calm the tight labor market, as the cornerstone of the Fed’s policy is to slow growth, while avoiding recession risks.
Technical review
USD indicator, D1 – The slip from the top of 114.71 on the main timeframes is still considered a corrective wave, while the potential move below the triple bottom could test the psychological mark at 100.00 and the 61.8% FR at 98.9. As long as the base price of the triple bottom holds, a move above 102.72 could signal the end of the corrective wave and the indicator could move up to test 105.85 resistance. Despite the divergence bias seen in the RSI and MACD, the indicator is still moving below the 26-day and 52-day EMAs.
The indicator’s weakness in March-April is still linked to public confidence in the US banking industry, which has yet to recover. In other news, shares of Backwest Bancorp rose sharply on Friday, after a previous sharp decline, as concerns in the US banking sector appeared to be easing.
Previously, the company confirmed that it is in discussions with potential partners and investors, after reports of potential sales came out. The broad recovery in the regional banking sector appears to have been driven in part by JPMorgan Chase & Co. That upgraded Western Alliance Bancorp, along with Zions Bancorp and Comerica Bank, to a plus rating, which means that their shares are expected to perform better in the future.
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Eddie Fangisto
Market Analyst – HF Education Office – Indonesia
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