Markets consolidate as traders digest US CPI volatility

Headlines

* Putin and Xi announce plans to strengthen military ties in Beijing

* 10-year US Treasury yield finds support at 200-day SMA

* Dow eclipses 40,000 for the first time as investors bet on rate cuts

* Dollar rebounds on hot US import prices, holding onto its 200-day SMA

FX: USD clawed back some of the previous day’s losses. Weekly initial jobless claims fell, which pointed to underlying strength in the jobs market. Import price data was stronger than expected.

EUR took a breather after its surge on Wednesday. Prices have consolidated near a long-term Fib retracement level (3.82%) of the Q4 rally at 1.0875. The final estimate of the Eurozone inflation data gets released tomorrow. The headline is currently at 2.4% and the core at 2.7% y/y.

GBP also paused near recent highs, printing earlier in the session at a five-week high at 1.27. MPC member Greene took a less hawkish stance saying there was more uncertainty about the path of inflation.

USD/JPY dropped sharply at the very start of the day, to a low at 153.60. The major then closed higher on the day at 155.38. Weak Japanese growth figures hurt the yen while interest rate differentials remain key.

AUD consolidated around the Fib level of the Q4 sell-off at 0.6676. After slightly softer than expected Q1 wage data on Wednesday, the jobs numbers added to evidence of cooling. USD/CAD rose after breaking down on the US CPI numbers and posting a five-week low. The advance ended six consecutive days of losses for the major.  

Stocks: US equities made fresh intraday highs before pulling back and closing in the red. The S&P 500 closed 0.21% lower at 5297. The tech-heavy Nasdaq 100 lost 0.21% to finish at 18,557. The Dow Jones settled down 0.10% at 39,869 but poked above 40k. Materials were the steepest decliner while consumer staples led the gainers. More Fedspeak from Mester said policymakers should hold rates for longer.

Asian Stocks: APAC futures are mixed. Asian stocks followed Wall Street higher after the softer CPI data. The ASX 200 went higher as rate-sensitive real estate and tech led gains. The Nikkei 225 advanced but investors had to digest softer GDP and a firmer yen. The Hang Seng and Shanghai Comp traded in the green as Hong Kong returned from a holiday and liked the recent property support measures, while eyeing up geopolitical events.

Gold pulled back after rising to $2397. Bullion hasn’t closed above $2400 as yet. Yields bounced with the 10-year US Treasury rebounding off support at 4.37%. That moves helped the buck. Copper closed below $5 having popped higher to $5.02.

Day Ahead –China Data

We get a China data dump with three activity data reports. Retail sales are seen ticking higher to 3.8% from 3.1%, and Fixed Asset Investment rising to 4.6% from 4.5%. Industrial Production is expected to advance higher, after printing at 4.5% last month.

Using the Caixin PMI data as proxies, the manufacturing release suggests a faster pace and measures of new orders and output, while economists say backlogs look more positive. The services-related consumption release outperformed its manufacturing counterpart. Tourism is said to be stronger in April. The government already announced plans to incentivise increased consumer goods consumption.  

Chart of the Day – EUR/USD pauses after breakout

The world’s most popular currency major has rallied hard this week as the dollar has struggled. A June ECB rate cut is nailed on but what happens after that meeting is more interesting, as the region’s economy picks ups, albeit from a low base. ECB President Lagarde & Co are likely to be highly data dependent even though there are just under three 25bps rate cuts priced in for 2024. The disinflation story in the US is obviously also key, with projections of a less sticky picture going forward.

Bullish trend dynamics in EUR/USD have done their job this week. But a deeper push into beyond 1.09 could prove tough near term with a key Fib level at 1.0875. The next retracement mark of the late 2024 rally sits at 1.0972. Support below resides at 1.0793, the midpoint of the Q4 move higher. The 50-day and 200-day SMA make up a support zone.