- Fed's Bowman: Not seeing as much moderation in inflation as we would like
- NY Fed January one-year ahead inflation expectations 5.0% vs 5.0% prior
- Revisions make for a particularly tricky US CPI report
- UAE energy minister says doesn't see requirement for earlier than scheduled OPEC+ meeting
Markets:
- Gold down $11 to $1853
- US 10-year yields down 4 bps to 3.70%
- WTI crude oil down 46-cents to $79.26
- NZD leads, JPY lags
- S&P 500 up 47 points, or 1.1%, to 4137
The economic calendar and news flow was extremely quiet in the countdown to CPI and you could be forgiven if you thought the market would be as well but that was far from the case. The US dollar slumped in Asia and Europe but perked up at the start of US trading. That didn't last long though as the risk trade steadily improved behind bids in bonds and stocks.
What does it mean? I'm tempted to conclude that there's no fear of inflation but -- in honesty -- the risks around the inflation report are two-sided. A low number puts a Goldilocks scenario into play as global growth prospects improve. Shorts may have bailed ahead of the data and the bond market might have concluded that the extra 25 bps that's now priced in is enough. After all, the Fed hasn't yet signaled the need to hike more.
The yen was soft on the day but recovered a bit in North American trade. USD/JPY got up as high as 132.91, which isi a pip above the February high but couldn't break through and retraced back to 132.38. Technical selling could have been part of the reason but the market is also struggling with the BOJ leadership decision. We've seen this story play out many times but the BOJ doesn't need a hawk or a dove, it needs a magician to get itself out of QE. The bigger story is the global growth is picking up and even if they end QE, spreads could widen if other global central banks have to tighten more.
Commodity currencies rode the risk wave with AUD and NZD leading the way. Oil chopped but finished lower and CAD lagged.
Overall, the countdown to tomorrow's CPI report is now firmly on and the moves today could quickly unwind if it's hot.
