US and European futures are trading higher as traders adjust to a new reality and begin to look at things from a positive angle: inflation in the US may have printed its strongest reading. It is pretty much a given that the Fed will increase the interest rate by 50 basis points during their next meeting. Still, the fact that inflation may have peaked makes traders believe that the Fed may not need to maintain its hawkish stance for an extended period. If future inflation readings begin to print lower readings, we will see the Fed becoming more comfortable with its mandate.
For now, speculators will have difficulty pushing the stock markets lower, but there are plenty of sticking points that can change the market players’ narrative. For instance, the ongoing geopolitical tensions between the US and Russia don’t seem to be cooling off. The US President, Joe Biden, isn’t hesitating in anchoring the conflict further as he has labelled Putin’s action in Ukraine as “genocide”. The Kremlin has warned that the US and its allies need to think very carefully if they desire to separate Russia from the West.
The Fed and CPI Inflation
Traders are still feeling relieved from their inflation anxieties after the release of the US CPI data yesterday. This is because many traders and investors believe that the US CPI inflation might have peaked this month, and this could be especially true if we do not see any further escalation of the conflict in Ukraine. Remember, Russia’s invasion of Ukraine pushed the oil prices to their highest level in 13 years, and higher oil prices only fuelled the ongoing soaring inflation situation. Traders need to keep in mind that they still have to be mindful of considerable external and domestic price pressures in the pipeline, and they tend to continue to push inflation higher.
According to official statistics issued on Tuesday, consumer prices in the United States climbed 8.5 per cent in March compared to the previous year, the highest yearly increase since December 1981. The consumer price index print was 8.4 per cent higher than the Dow Jones forecast. The core consumer price index, which excludes food and energy, showed indications of easing. It increased by 0.3 per cent for the month, less than the 0.5 per cent predicted.
The inflation data issued on Tuesday validates expectations for the Federal Reserve of the United States to raise interest rates by 50 basis points in May.
The Reserve Bank of New Zealand surprised traders with its monetary policy decision again.
On Wednesday, the bank boosted its official cash rate by 50 basis points to 1.5 per cent when the market players expected an interest rate hike of 25 basis points only. The rate rise was the RBNZ’s fourth in a row and the greatest in more than 20 years. The bank is clearly determined to lower inflation in the country, and it is using its aggressive monetary policy stance to bring matters under control. The NZD/USD pair saw a serious price surge on the back of the bank’s decision, and it is likely to maintain its momentum. Traders are also paying close attention to the AUD/NZD forex pair.
The Bank of Canada is the next central bank to announce its monetary policy decision later in the day. The decision is expected to come out at 15:00 GMT, and it is widely anticipated that the bank will increase the interest rate by another 50 points pushing the interest rate to 1%. Traders will be watching and listening to the press conference very carefully as it is highly likely that the bank will increase interest a few more times this year. Traders would like to know if each of them will be 50 basis points or even more than 50 points.
The US traders’ economic event that matters the most is the US PPI m/m reading, scheduled to come in at 13:30 GMT. After the hot reading of CPI, the PPI is also expecting to print its last most substantial number today, and the forecast is for 1.1% against the previous number of 0.8%.
The black gold seems to be in the price recovery stage again as traders feel more optimistic about oil demand. The recent signs indicate that China may change tolerance concerning its Covid policy. The critical price level for Brent oil prices is $100, and as long as the price continues to trade above this support zone, we are likely to see a continuation of the upward trend.
Oil traders will also be watching the US Crude inventory data closely, as the release of the US strategic oil reserves brought oil prices lower. If we see the inventory data showing a significant drawdown, we could see bulls pushing oil prices higher and vice versa.
Gold prices are on the move once again, and the precious metal’s price is up for the third day in a row. Traders know that inflation isn’t going to ease off from its current level overnight, even though we may have seen a peak inflation situation. The other important point for gold traders is that if inflation has peaked, that means that the future trajectory of the Fed’s monetary policy isn’t going to be as hawkish as it currently is. This fact is also supporting the current gold price move.
The crypto king, Bitcoin, has formed a strong correlation with stocks, and its correlation with the gold price isn’t as strong as it used. This fact is quite intriguing, primarily because Bitcoin is considered one of the biggest hedges against inflation. Yesterday’s soaring inflation reading failed to bring any meaningful moves in the asset’s price. On the bright side, bitcoin’s volatility has dropped significantly, favourable for its fundamentals in the past few days. Speaking of fundamentals, investors are looking to if other stable coins like TerraUSD will add Bitcoin to their reserve currency basket. Terra’s stable coin has been adding bitcoin to its reserve currency basket. By the time it completes its target, it will have more bitcoin than Tesla or MicroStrategy.