US inflation, a make-or-break moment for investors!
It’s D-day of the week: we will see whether inflation in the US started easing in April after hitting a four-decade high in March, and if yes, by how much.
A soft inflation read will come as a relief that the Federal Reserve’s (Fed) efforts to tame inflation start paying off, but any disappointment could send another shock wave to the market.
For now, activity on Fed funds futures give almost 90% chance for a 50-bp hike in FOMC’s June meeting; there is a lot left to be priced for a 75bp hike, if the data doesn’t please. To avoid pricing in a 75bp hike at next FOMC meeting, we must see an encouraging cooldown in inflation.
In the FX, the US dollar extended gains, despite the easing yields yesterday, as the risk-off flows continued supporting the greenback. The levels against the majors like euro, yen and sterling remained flat, but the positive pressure in the dollar, combined with Turkey’s unconventional monetary policy start giving signs of exhaustion. The dollar-try advanced past the 15 mark, and the government asked institutions to make their FX operations within the most liquid trading hours. Two weeks ago, the bank had revised its regulations on banks' reserve requirements, applying them to the asset side of balance sheets in order to strengthen its macroprudential policy toolkit. The latter required reserves now pressure the overnight rates to the upside – suggesting that the unconventional policy is near limits.
Energy are up and down… but mostly up. The barrel of US crude tipped a toe below the $100 level on news that the Europeans softened their sanctions proposal against the Russian oil, but oil is already above the $100 this morning. The upside potential is fading due to slower global growth prospects, and the Chinese lockdown.
Watch the full episode to find out more!