US CPI explodes to 8.5%

“The only place where success comes before work is in the dictionary.” – Vidal Sassoon

HEADLINES

• Dollar drops as inflation readout puts Fed policy course in view
• Gold gains over 1% as Treasury yields ease post inflation data
• Oil jumps 7% on OPEC warning and easing of Shanghai COVID curbs
• Oil rises on Russian oil production constraints
• Wall St rises as growth stocks bounce after inflation data
• EUR and JPY to lag against the USD, commodity currencies to outperform – TDS
• USDJPY Near Term: Upside favored

FOREX

Dollar drops as inflation readout puts Fed policy course in view

The dollar slid on Tuesday after U.S. inflation data showed consumer prices rose by 8.5% in March compared to a year ago, boosted by soaring gasoline, but tempered by less expensive used cars and trucks.

While the initial readout came in slightly hotter than analysts expected, with the U.S. consumer price index (CPI) posting the biggest monthly rise in consumer prices in 40 years, the data showed some signs that inflation may have peaked. Core CPI fell short of estimates, landing at 6.5%.

COMMODITIES

Gold gains over 1% as Treasury yields ease post inflation data

Gold advanced more than 1% on Tuesday as Treasury yields eased after U.S. inflation data largely met expectations, reducing the likelihood of long-term aggressive policy tightening by the Federal Reserve.

While gold is considered an inflation hedge, rising prices can lead central banks to hike interest rates, pushing up bond yields and increasing the opportunity cost of holding zero-yield bullion.

Oil rises on Russian oil production constraints

Oil prices climbed on Tuesday as Russian oil and gas condensate production fell to 2020 lows and OPEC warned it would be impossible to replace potential supply losses from Russia.

Russian oil and gas condensate production fell below 10 million barrels per day (bpd) on Monday to its lowest since July 2020, two sources familiar with data said on Tuesday, as sanctions and logistical constraints hampered trade.

Sources said Russia’s average oil output fell more than 6% to 10.32 million bpd on April 1-11 from 11.01 million in March.

STOCKS

Wall St rises as growth stocks bounce after inflation data

The Nasdaq led the charge on Wall Street on Tuesday after data showed inflation rose largely in line with estimates, lifting growth stocks that were hammered by a surge in Treasury yields on expectations of aggressive U.S. interest rate hikes.

Money markets still expect a 93.5% likelihood of a 50 basis point rate hike at the Fed's meeting next month, largely unchanged from before the data. IRPR

The Nasdaq remains down nearly 13% for the year, the worst performer among the three major indexes.

ANALYSIS

EUR and JPY to lag against the USD, commodity currencies to outperform – TDS 

“Consumer prices came on top of expectations in March, rising an eye-popping 1.2% MoM. The core index, however, rose a less strong 0.3%, surprising expectations to the downside. The 12-month changes in the overall and core CPI rose to new multi-decade highs, but we expect March to represent the peak of the cycle.”

“The need for the Fed to deliver a series of 50bp hikes remains in place. Inflation prints will be consequential for terminal rate pricing, which will matter more for the USD from a cyclical point of view.”

CHART

USDJPY Near Term: Upside favored

Technical View: Long position above 123. Target 125.9. Conversely, break below 123, to open 122.2.

Comments: The pair is expected to resume advance after correction.

Source: Trading Central

 

CALENDAR

*Times in GMT

Source: FX Street Economic Calendar

Footnotes
https://www.reuters.com/business/euro-slips-vs-dollar-treasury-yields-hit-multi-year-highs-2022-04-12/
https://www.reuters.com/business/gold-prices-inch-higher-ahead-us-inflation-data-2022-04-12/
https://www.cnbc.com/2022/04/12/oil-markets-covid-in-china-opec-supply-warning.html 
https://www.reuters.com/article/global-oil/oil-rises-on-russian-oil-production-constraints-idUSKCN2M4027
https://www.reuters.com/business/futures-steady-ahead-crucial-inflation-data-2022-04-12/
https://www.fxstreet.com/news/eur-and-jpy-to-lag-against-the-usd-commodity-currencies-to-outperform-tds-202204121500