Inflation woes hits US stocks, dollar undergoes U-turn
Volatility in the markets picked up today following the release of the US CPI data, as the reading jumped from 7% to 7.5%, a new 40 year high. Keep in mind that economists were expecting 7.3%. Not only did the headline figure rise, but so did the core metric as it increased to 6% from 5.5%. The core CPI report is a better gauge of underlying demand, and judging by today’s announcement, demand is robust. There was talk the headline inflation reading was being skewed because of rising energy prices, and that fundamental demand is nowhere near as high, but now it is obvious that consumer’s appetite is strong. The lofty inflation readings spurred on speculation the Federal Reserve might hike interest rates several times this year.
As a reaction to the CPI data, the US 10-year yield hit 2%, a level last seen in July 2019. The US dollar jumped following the CPI numbers and it pushed EUR/USD below the 1.1400 mark, but as the dust settled, the greenback retreated and now the euro is up 0.4% versus the dollar. It says a lot about the about the weakness in the US dollar when it can’t hang onto a gain on a day like today.
Sterling is higher across the board as dealers still remember the hawkish update from the Bank of England last Thursday. A jump in copper prices has lifted the Australian dollar. The red metal hit its highest mark in over three months. On account of the U-turn in the greenback, gold saw a lot of volatility, and in the last few hours it printed a new two-week high due to the recent weakness in the dollar. US index futures also saw a rebound, but not to the same extent whereby they came under major selling pressure due to concerns the Fed might lift rates at a fast pace this year, but some of those concerns melted away, and even though the S&P 500 and the NASDAQ 100 are in the red, they are comfortably off the session lows. By contrast, the mood here in Europe is much more upbeat as the FTSE 100 and the DAX are set to finish higher on the day.