Markets choppy again ahead of US CPI data

Headlines

* 10-year Treasury yields falls as investors await inflation data

* Gold hits record high for eight session in a row

* Stock futures are little changed as investors big risk events

* BoJ said to mull raising inflation view on strong pay deals

FX: USD slid to the 50-day SMA at 103.91before rebounding modestly. Trading has been rangebound recently as markets await US CPI out today. There’s currently around 65bps of Fed easing priced in for 2024. That’s less than the Fed predicted at its March FOMC meeting. See below for more detail on the data release.

EUR was marginally lower on the day. The ECB meeting looms on Thursday with a “dovish hold” expected. Markets are keen to hear signals about a June rate cut. Data dependence won’t cut it but could underpin support for EUR.

GBP advanced above 1.27 before paring gains. The midpoint of the March-April range sits at 1.2717. The 50-day SMA is below 1.2665. June rate cut odds are similar for the BoE and Fed. UK CPI will be watched along with wage data next week.

USD/JPY got to 151.93 before pulling back slightly. That’s oh-so close to the 34-year peak at 151.97 hit last month. Japanese officials continued endeavouring to talk up the yen.

AUD got to a one-month high at 0.6644 before sliding modestly. USD/CAD was choppy ahead of the Bank of Canada meeting later today. Prices are trapped below a resistance zone just above 1.36. The NZD popped up to 0.6076 before retracing and the RBNZ meeting shortly. See below for more detail.

Stocks: US equities eked out very small gains ahead of big risk events. Stocks staged a late comeback after Nvidia took a turn lower. The broad-based benchmark S&P 500 finished 0,.14% higher at 5209. The tech-heavy Nasdaq 100 added 0.39% to close at 18,169. The Dow Jones settled 0.02% down at 38,883. Nine of the 11 major sectors closed in the green. Earnings season starts on Friday with heavyweight financial institutions like JP Morgan and Wells Fargo. They will set the tone for the rest of the Q1 results.

Asian Stocks: APAC futures are mixed. Markets traded mostly higher with price action relatively rangebound. The Nikkei 225 continued to benefit from the weak yen. The ASX 200 was led by miners after weak consumer sentiment. The Chinese indices were mixed. The Hang Seng struggled at the psychological 17k level.

Gold soared again to fresh highs. A softer dollar and yields helped. The peak hit $2365.  

Day Ahead – US CPI, Fed Minutes, RBNZ, BoC

It’s a super busy day with two central bank meetings and top tier US inflation data. The RBNZ will keep rates on hold, but markets are expecting rate cuts probably sooner than the bank’s current guidance. That had unchanged rates through 2024, while markets currently price in 10bp of cuts in July and a full 25bp in August. That means there could be upside risks to NZD if policymakers are more hawkish.

The Bank of Canada could be more open to policy easing sooner. Labour market slack is increasing, and inflation is closer to the 2% target. We might hear that progress still “gradual and uneven” but the BoC could express some confidence that they are on the right path. There is already a high chance of a June rate cut but this could be cemented with a mildly dovish statement.

US CPI could come in mixed with the headline ticking higher due to rising gasoline prices. But rate setters are focused on the core print with the annual print seen lower, while the monthly is expected to come in at 0.3%. This is still too high to get inflation back to target in the near term. The FOMC minutes could give us some colour on the timing of a rate cut after the Fed kept 75bps of easing in its 2024 median dot plot.

Chart of the Day – USD/CAD could break out of range

The market is pricing in around 18bps of easing at the June BoC meeting. That’s roughly a 72% chance of a move. Near 75bps of total rate cuts are priced in for 2024. That contrasts with the Fed June odds which have dropped to a coin toss in recent days and around 65bps in total for this year.

If the BoC does deliver a dovish message, USD/CAD could break out of its current range to the topside. But resistance is strong just above 1.36. A more cautious BoC who do not signal any policy easing, allied to a softer US CPI report would put pressure on support at 1.3520 and 1.3453.

AUTHOR

Jamie Dutta >

Jamie Dutta is a Market Analyst for Vantage. He comes with extensive experience as a full-time trader and financial market commentator, having worked as a trader in top tier investment banks and trading houses.