From Marc to Market, May 11:
Overview: It appears that investors have become more concerned about growth prospects and less about inflation in recent days. The US 10-year yield that had flirted with 3.20% at the start of the week is now around 2.93%. It is approaching the 20-day moving average (~2.90%), which it has not closed below in a little more than two months. European yields are sharply lower (~4-8 bp) with the core-periphery premium narrowing. Asia Pacific equities were mixed, but China, Hong Kong, and Australia advanced, as did the Nikkei. Europe's Stoxx 600 is up more than 1%, and if sustained, would be the largest in a month. Consumer discretionary, energy, and real estate are leading today's move. US futures are 1.0%-1.3% better. The dollar is under pressure. Led by the Antipodeans and Scandis, all the major currencies are gaining against the greenback today. The euro's roughly 0.35% gain is the least. Most emerging market currencies are also stronger. Turkey, Czech, and Thailand are notable exceptions.
Gold is recovering from a three-month low set earlier today near $1832. It has meet new selling pressure in the European morning ahead of $1855. June WTI is rebounding after falling to $98.20. However, it stalled as it approached $104. Reports suggest that Russia's gas deliveries via Ukraine are being interrupted for the first time since the war began. Yet, US natgas prices are about 1% higher after yesterday's 5.1% gain, and Europe's benchmark is off around 3.5% to unwind all of yesterday's gain and more. Iron ore prices surged 4% to snap a three-day more than 13% slide. June copper is still in its trough, but the four-day decline may be ending. The June contract is up about 1.7%, the most since the middle of last month. July wheat is firm after an unchanged session yesterday and is practically flat for the week.
Asia PacificFood and energy prices lifted China's CPI, but the impact of the Covid lockdowns was evident in today's inflation report. Consumer prices rose 2.1% year-over-year, up from 1.5%, and a bit higher than expected. Food prices rose 1.9% after falling 1.5% in March. Fuel prices rose by more than a quarter year-over-year. Non-food prices, excluding energy were softer. Core prices, excluding food and energy, rose by 0.9%, slowing from 1.1% in March to a 10-month low. Producer inflation eased for the sixth consecutive month. The 8.0% year-over-year rate is the slowest since last April. Prices for raw materials and mining accelerated, manufacturing, products of daily use, and the price index of consumer durable goods actually fell. The data confirms, in some respects, what we already knew: inflation concerns do not stand in the way of additional policy stimulus from Beijing........AmericaThe year-over-year pace of US CPI accelerated for seven consecutive months through March. The first easing is expected. To be sure, the month-over-month rate likely rose last month but not as much as in April 2021 (0.6%). Still, the 0.2% rise projected by the median forecast in Bloomberg's survey would be the smallest monthly increase since January 2021. The headline rate may slow to 8.1% from 8.5% and the core rate is forecast to ease to 6.0% from 6.5%. Everyone recognizes that price pressures are elevated, but the idea is that if inflation is near a peak, then interest rates may be, and the greenback by extension.....
