US markets are closed today due to a public holiday, and this means trading volumes in European markets are likely to be light. European futures are trading lower as traders are still trying to digest the economic numbers out of the US—the US CPI reading. It is important to keep in mind that global markets aren’t really trading in tandem and that is primarily due to the different expectations around the monetary policy. Although one common theme among them is that inflation is on the move, and it is only moving to the upside, which isn’t great news for the equity markets or for the next quarterly earnings season either.
The US inflation data surprised investors yesterday. Traders were hoping that they would get to see a reading showing that inflation is easing off but in fact inflation data confirmed that things are going to become a lot uglier before they become normalised. The US CPI number came in at 0.9%, against the forecast of 0.6%. This reading created enormous volatility in the US markets.
In the US equity markets, we saw a sharp sell off as traders are starting to believe that the Fed is well behind the curve, and it is absolutely necessary for the Fed to admit that the current inflation situation may not be transitory. Market players believe that there is strong possibility that they may see the Fed raising the interest rate sooner rather than later. Currently the market expectations are that the Fed will start lifting the interest rates in Q3 of the next year. But after the inflation data, there is a possibility that we may see the Fed start hiking the interest before that, especially if inflation data continues to soar like yesterday.
The inflation data also brought enormous volatility in assets that are considered as a hedge against inflation such as gold and Bitcoin. The gold price had been trying to break above the 1825 price level for the last number of months. However, gold traders had been failing to move the price above that mark and it was only yesterday that they saw some fruits for their labour. Basically, the inflation data provided a much-needed boost for the gold price, and the yellow metal price went straight through its previous resistance of $1825 to $1835. The price made a high of $1864.
As for the bitcoin price, we also saw the price moving sharply to the upside, and Bitcoin recorded another all-time high of 69K. However, after touching that price, we saw a serious sell-off in the BTC price, and the crypto king fell all the way to 63K. In a way, this is a blessing for many investors because now those investors who have been waiting on the side lines could get back on the Bitcoin train if they want to. This is because on the intra-day, 4-hour time frame, the prices are certainly oversold, and this presents an opportunity to bag some bargains.
In the forex market, we also saw some sharp moves and that is primarily due to the strength in the dollar index. The dollar soared against the Euro, Sterling and other G10 currencies. It is likely that this trend may continue, and this is mainly due to the change of odds in the Fed lifting the interest rates sooner rather than later.