> EU April German Final CPI : 0.7% v. 0.7% exp.
> UK Q1 Prelim GDP : -1.5% v. -1.6% exp.
> UK March Industrial Production : 1.8% v. 1.0% exp.
> EU March Industrial Production : 0.1% v. 0.8% exp.
> US April H/line CPI & Core CPI : 0.8% & 0.9% v. 0.2% & 0.3% exp.
> US EIA Crude Oil Inventories : -0.4Mio v. -2.1Mio exp.
Overnight Headlines (BBG)
> The US showed that consumer prices increased in April at the fastest pace since 2009, with the economic recovery now at risk on surging prices
What you need to know
It was a rough session for risk appetite, starting in Asia as equity futures started to come off and stocks in Taiwan took a bath it was all about the US consumer inflation report that was released overnight. The AUDUSD touched a local session low of 0.7786 before trickling back above the 0.7800 handle as strong UK industrial production numbers boosted sentiment leading into the European session, however the looming CPI report from the US was on investors minds. The report surprised even those with high estimates, with consumer prices increasing at the quickest levels since 2009 and the core number the highest in 25 years. The test now sits with the US Fed, as they have immediately started touting the transitory nature of the number in their Fedspeak. Equities and commodities hit on the report as the rise in real yields saw risk tilt to the downside, with the S&P500 down over 2% as the rotation from growth to value continued yet again. UST yields rose across the curve with the 10y yield up as much at 7.4bps from yesterday’s open. The 30y also saw gains, up as much as 6.8bps. It is hard to ignore those figures, and the impact on currency markets was felt the most from the high-beta currency pairs with the AUD and NZD the worst performers on the day. The tightening narrative saw the USD strengthen in DXY terms, up 0.65% on the day. The price of Copper is down 1.6% while Gold is also down 1.2% on the session. WTI crude edging out slight days, while Iron Ore remains elevated over US$200/tonne.
The Day Ahead
> NZ April Food Price Index : 0.0% prev.
> JP March Current Account : 1.87T exp.
> AU April Inflation Expectations : 3.2% prev.
> US Unemployment Claims : 487K exp.
> US April H/Line PPI & Core PPI : 0.3% & 0.4% exp.
> US FOMC Members Barkin & Waller to speak
> UK BOE Gov. Bailey to speak
> CA BOC Gov. Macklem to speak
The inflation report likely took most of the weaker long positions out of play, with the pair now back down towards the 0.7700 handle as I write this morning. The data is light today, although local tier two inflation expectations will be on the cards around 11am. With inflation back to the forefront, the narrative is likely to see a move lower in commodities as investors reassess what this might mean for Central Bank policy moving forward. Producer prices also on the docket this evening from the US, with a strong report there only adding fuel to the already hot economy.
Range for the day : 0.7690 – 0.7760
That didn’t last long above 0.7800, with the surging inflation narrative seeing the pair breakdown and hover back around the 50/100DMAs this morning. The chances of a move towards 0.7690 seems likely as the shift from growth into value and rising inflation expectations weighs heavy on the pair. Short profit taking may see the pair rally back up towards the 0.7700 middle.
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