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Dollar slips on relief inflation was not too hot…

Fawad Razaqzada Fawad Razaqzada 13/04/2021
Dollar slips on relief inflation was not too hot… Dollar slips on relief inflation was not too hot…
Dollar slips on relief inflation was not too hot… Fawad Razaqzada
…but the greenback could make a comeback once the dust settles.
 
dollar indexSource: ThinkMarkets and TradingView.com

One of this week’s much-anticipated macro data has just been released. Consumer prices in the US were expected to have jumped 2.5% in March from a year earlier, or 0.5% month-over-month. But the actual data showed CPI rose 2.6% y/y or 0.6% m/m. Core inflation rose to 1.6% y/y from 1.3%, with the month-on-month reading printing 0.3%.
 
As inflation was only slightly hotter than expected, the dollar, which was rising ahead of the data, eased back down to levels it was trading prior to the publication of data. US index futures recovered from their earlier lows with Nasdaq futures breaking out.

So, it looks like the market was actually relieved that inflation was not as hot as some had feared. But once the dust settles, we may see the dollar come back and yields rise as investors look ahead to the future path of inflation and what that might mean for the dollar.
 
Looking ahead
 
Inflation will probably pick up further and the numbers for the next few months may appear abnormally large as base effects from the 2020 lockdowns skew the data. The Fed expects inflation to then settle down after a temporary acceleration. However, the key risk is if their assumption turns out to be wrong, and price pressures remain elevated. In fact, with consumers’ inflation expectations rising, this is could translate to actual rise in price levels.  According to the Federal Reserve Bank of New York’s monthly Survey of Consumer Expectations, a growing share (44%) of surveyed Americans see the inflation rate rising over 4% in the year ahead, the most since September 2013.
 
Therefore, there is a possibility that the Fed may want to ease off the gas sooner than expected as the economy potentially heats up faster. They wouldn’t want to overcook inflation and then apply the brakes harshly. So, watch out for a change of tone from Jay Powell and co. in the coming weeks.
 
Subtle change of tone from Fed Chair
 
In fact, the Fed Chair Jay Powell said something very interesting yesterday, even though at first it sounded quite a normal thing to say - that it was highly unlikely there would be any rate hikes this year. Previously, the Fed Chair was implying not to expect a rate hike for at least a couple of or few years. So, there was a subtle change in his tone in that regard. Now Powell is quite bullish on the economy, and if we do now see more signs of the US economy heating up, then there could be a noticeable change in tone from the Fed.
 
More Fed officials are going to be speaking this week, and more macro data will be coming up as well. So, watch out for bond yields and the US dollar to potentially rise more noticeably in the coming days.
 
But what about the stock markets?
 
With bank earnings starting this week, I reckon that volatility in equities will spike sooner or later anyway. But the key question is whether growth optimism will be replaced by inflationary concerns and taper tantrums soon. All it takes is a few people to start selling to get the ball rolling. With all the above macro concerns and talks about corporate tax hikes to pay for the cost of stimulus, things could unravel on Wall Street soon. Keep a close eye on the major indices -- and indeed individual names with the reporting season officially underway now.
 
US Suspends J&J Vaccine
 
US index futures fell before the inflation data was released on the back of reports that the US will pause Johnson & Johnson vaccines amid blood clot concerns. The is potentially dealing a blow to efforts to reopen the world’s largest economy, but following the inflation data futures jumped and Nasdaq in particular showed good strength as investors were relieved inflation was not too hot.
 
 
Here is what’s in store for the next few days:
 
Wednesday
  • RBNZ rate decision
  • Eurozone industrial production
  • Fedspeak: Chair Powell and FOMC members Williams and Clarida
  • Earnings: JPMorgan, Goldman Sachs, Wells Fargo
  • Coinbase IPO
 
Thursday
  • Aussie employment report
  • US retail sales, unemployment claims, industrial production and a few other second tier data
  • Earnings: Bank of America, Citigroup and PepsiCo
 
Friday
  • Chinese GDP, industrial production and retail sales,
  • US building permits, housing starts, and UoM Inflation Expectations and Consumer Sentiment
  • Earnings: Morgan Stanley, Bank of New York Mellon Corp and Honeywell International
 
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.

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Meet our contributors
Fawad Razaqzada
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Fawad Razaqzada
Market Analyst, London

Fawad is an experienced analyst and economist having been involved in the financial markets since 2010, producing market commentary and research for a number of global FX, CFD and Spread Betting brokerage firms. He leverages years of market knowledge to provide retail and professional traders worldwide with succinct fundamental & technical analysis. Fawad also offers trading education to help shorten the learning curves of developing traders.
 
His colleagues consider him an expert at reading price action on the charts. This together with his deep understanding of economics and fundamental analysis, and trading experience, puts him in a great position to forecast short term price movements. Fawad covers a wide range of markets, including FX, commodities, stock indices and cryptocurrencies and his comments are regularly quoted by the leading financial publications such as Reuters and Market Watch. In addition to ThinkMarkets, Fawad also provides analysis and premium trade signals on his own website at TradingCandles.com.
 
 

Carl Capolingua
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Carl Capolingua
Market Analyst, Melbourne

Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions. Specialising in Australian and US stock markets in particular, Carl uses a top-down approach to assess the global macro picture before using both technical and fundamental techniques to select stocks. He regularly appears as an expert commentator on a number of media outlets throughout the Asia-Pacific region.
 
 
 

Kearabilwe
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Kearabilwe Nonyana
Market Analyst, South Africa

Kearabilwe is an experienced Sales trader and Analyst specialising in Equity and Equity derivatives. His career in the financial markets has seen him hold various positions in global investment banks and global CFD and Spread betting firms. He has deep interest in using quantitative methods to help him understand and teach the fundamental drivers of asset prices.
 
 
 

Fawad Razaqzada
Fawad Razaqzada
Fawad is an experienced analyst and economist having been involved in the financial markets since 2010, producing market commentary and research for a number of global FX, CFD and Spread Betting brokerage firms.
Carl Capolingua
Carl Capolingua
Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions.
Kearabilwe
Kearabilwe Nonyana
Kearabilwe is an experienced Sales trader and Analyst specialising in Equity and Equity derivatives.

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Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.
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