The planet is boiling.

Escalating geopolitical tensions combined with the hawkish Federal Reserve (Fed) bets boost demand in the US dollar, while gold sees demand below the $1840 mark.

But the US yields are trending higher on an increasingly hawkish Fed talk, and that could well send the precious metal into the bearish consolidation zone, sooner rather than later.

And the Fed hawkishness is spreading toward Europe. The European Central Bank’s (ECB) Isabel Schnabel warned last week that investors may be underestimating the persistence of inflation, and more importantly the response needed to tame it.

The EURUSD rebounded from the 1.0612 dip on Friday.

The European stock markets, on the other, continue performing well despite the hawkish ECB expectations. Why?

Watch the full episode to find out more!

The equity marathon that kept going on for questionable reasons since Tuesday ended in tears yesterday, with the arrival of a new set of economic data that crushed the optimistic rhetoric of soft landing.
Released yesterday, the latest data showed that US producer price inflation rose more than expected on a monthly basis, both for headline and core data, and the core PPI eased less than expected – similar to what we saw in the CPI data, BUT the Philli Fed manufacturing index was a disaster with an unexpected drop from -8.9 to -24.3 – the expectation was a -7.4 print.

So that crushed the idea that the economy is strong, without however fueling the Federal Reserve (Fed) cut expectations, as the slowdown in inflation needs to be addressed for some more time.

And of course, comments from two Fed members were the last nails in the coffin yesterday. Loretta Mester said that she would go for a 50bp hike if she had the right to vote in the latest FOMC meeting. And James Bullard said that he would back a 50bp hike in March, if he could vote this year.
The US 2-year yield consolidates a touch below 4.70%, while the 10-year yield hit 3.90% for the first time this year.

The S&P500 gave back nearly 1.40% yesterday, while the more rate-sensitive Nasdaq fell nearly 2%.

US futures hint at further selloff before the weekly closing bell, as in the absence of important data, investors will have to digest the week’s mixed data. And the bad news is, the European stock traders will also have to think whether a further rally in European stocks makes sense, when the EURUSD is trending lower.

Watch the full episode to find out more!

Do you remember we were predicting a recession, that was supposed to hit the US and the global economy at the start of the year?

A recession that would hit equities and boost bonds?

Well, forget about all that, it’s not happening.

The US jobs data remains strong, inflation continues coming lower but the downtrend gives signs of slowing. And yesterday’s US retail sales data came as a cherry on top, with an eye-popping 3% rise in retail sales last month; it was the biggest jump in the past two years.

The S&P500 ended the session 0.28% higher, while Nasdaq 100 stocks added almost 0.80%.

Treasury yields pushed higher, however, on expectation that the Federal Reserve (Fed) will continue its rate hike policy – and quite aggressively, given that the rate hikes don’t seem to do any harm to the economy.
Deutsche Bank revised its terminal Fed rate from 5.1% to 5.6%. Citi believes that the Fed will end up pushing the rates all the way up to 6%.

Today, the US will reveal the latest producer price inflation data. Producer prices are expected to have ticked higher by 0.4% m-o-m in January, versus a 0.4% retreat printed last month. On a yearly basis, the PPI index is expected to have slowed from 6.2% to 5.4%.

Normally, I would expect a positive PPI surprise – meaning stronger inflation figures - to impact the market mood negatively, but at this point, I am not even sure that it matters.

Watch the full episode to find out more!

Looking at the market pricing, you could’ve hardly guessed, but yesterday’s US inflation report was not brilliant.

But US stocks gave a mixed reaction. Why?! Why did people buy equities on strong inflation data yesterday, is the main topic of today’s Market Talk.
Still, treasury markets seemed more down to earth, as the US 2-year yield ticked to the highest levels since last November, activity on Fed funds futures gave a little more than 12% probability for a 50bp hike at the next FOMC meeting, versus around 9% at the start of the week.

But the dollar index remained stuck below its 50-DMA.

Gold extended losses to $1843 on the back of stronger yields and firmer US dollar.

The EURUSD found support above the 50-DMA, which stands around the 1.0715 mark.

The dollar-yen cleared resistance near its own 50-DMA level, but the risks are still tilted to the downside in USDJPY.

In the UK, inflation in January still eased more than expected to 10.1%.
Crude oil remains offered into the 100-DMA, on a massive 10 mio barrel build in US oil inventories last week, while Biden Administration announced there would be further releases from the strategic petroleum reserves of 26 million barrels earlier this week.

In individual stocks, Warren Buffett sold 86% stake in TSM. Shares plunged more than 4% in Taipei.

Watch the full episode to find out more!

Market bulls have endless optimism this year, it is amazing. Whether it is funded or not, is yet to be seen.

Inflation could help answer that question today.

A few indicators point at a certain uptick in inflation in January figures, and the expectation is that the US headline CPI may have slowed to 6.2% in January, from 6.5% printed a month earlier, on a yearly basis.

A sufficiently soft, or ideally a softer-than-expected CPI read today should give an additional boost to the equity bulls while a stronger inflation read could easily bring the Fed hawks back to the marketplace and send equities tumbling.

In the FX, the US dollar has seen a crowd of sellers above the 50-DMA. A strong inflation data could finally send the dollar index sustainably above its 50-DMA, while a soft reading will be a good reason to sell the rebound.
The EURUSD continues its own struggle around the 50-DMA.

In Japan, Kazuo Ueda has been nominated as the next Bank of Japan (BoJ) governor. There are rumours that the new BoJ leader could scrap the YCC policy. The yen was better bid in Tokyo, but the US CPI data is probably what will determine the short-term direction both in EURUSD and the USDJPY.

What everyone wants to see is a soft US CPI figure, a softer US dollar, strong equities, improved bonds, and stronger other currencies.

What everyone fears however is a figure that’s not convincingly softer.

The only sure thing is, the CPI days are known for their high intraday volatility.

Watch the full episode to find out more!