Wednesday, May 15, 2024

Capital Markets: "Will USD be Bought on the Fact after Being Sold on Expectations of a Softer CPI?"

Questions, so many questions today.

From Marc to Market: 

Overview: The dollar is trading heavily against the G10 currencies and most of the currencies from emerging markets. The market expects softer US CPI (and retail sales) today. Any decline in the year-over-year core rate would put it at its lowest level since April 2021. Still, this has been anticipated, and the market seems vulnerable to "sell the rumor, buy the fact" type of activity. After all, the Fed will see another employment and CPI report before the June 12 meeting. Moreover, comments by Fed officials have encouraged the market to push out the first cut to September (~85%) and about an 80% chance of a second cut before the end of the year. Of course, the dollar would likely rally on an unexpected increase in CPI too.

US interest rates are softer today. The two- and 10-year Treasury yields have eased in three of the four sessions before today. Near 4.42%, the US 10-year yield is at its lowest level since April 10, the day that March CPI was reported. European benchmark 10-year yields are 5-7 bp lower today. That leaves peripheral benchmark yields lower over the past three months, while German and French yields are up a dozen basis points. Equities are mostly firmer today. China, Hong Kong, and India are the main exceptions from the Asia Pacific region. Europe's Stoxx 600 is extending its advance for the ninth consecutive session, while US index futures are little changed. Softer yields and a weaker dollar have lifted gold to a new high for the week near $2375. June WTI has steadied after falling 1.4% yesterday. It is nearly flat on the week near $78.25. July copper is extending its rally to new record levels. It is up 3% today after a 2.7% rally yesterday. It has not fallen since last Wednesday.

Asia Pacific
The Biden administration estimates that the various tariffs announced yesterday would impact around $18 bln of imports.
Last year, the US imported almost $450 bln of goods from China, and total goods imports were around $3.1 trillion. Many media accounts accept at face value that the goal is to boost domestic manufacturing in critical industries. On the contrary, there are good reasons to suspect the tariffs are more show than substance....


Mr. Chandler has been at the market for a while.