U.S. April CPI annual rate hit a 13-year high. Last night, the U.S. released April unadjusted CPI annual rate, recorded 4.2%, the highest value since September 2008, also much higher than the expected 3.6%. April quarterly CPI monthly rate recorded 0.8%, higher than the previous value of 0.6%. Following the release of the data, the ten-year U.S. bond yield jumped briefly, and by this morning it had risen to above 1.7%.
The dollar index rallied strongly. Likewise, the U.S. CPI surged, pushing the dollar index higher. The dollar index touched a high of 90.8.
In addition, market expectations for a rate hike have also risen. The U.S. money market sees a 100% probability that the Fed will raise interest rates by 25 basis points by December 2022, compared to 88% previously. And Federal Reserve Vice Chairman Clarida was also surprised by the higher-than-expected inflation data, but he still believes that the upside of inflation is largely a temporary phenomenon, which is mainly related to the base effect when the economy shut down last year, as well as supply chain bottlenecks pushing up prices.
In addition, some analysts say that the unexpected jump in U.S. inflation, coupled with slow employment, or to the Republican Party to add new leverage to block Biden’s economic plan. However, after Wednesday’s meeting with Biden at the White House, congressional Republican leaders said there was a possibility of agreement with Biden on an infrastructure plan. So, let’s wait patiently for further clarity on the news regarding Biden’s economic plan.
The S&P 500 suffered heavy losses. U.S. bond yields and the U.S. dollar index have moved higher, the three major U.S. stock indexes collectively suffered heavy losses. Among them, the S&P fell more than 2%, the worst performance since February.
Gold plunged $30. Gold bulls also suffered a heavy setback. Earlier, gold prices once soared to $1,843, then gave back gains and once fell to near $1,813.
Silver fell more than 2%. Likewise, silver bulls also had a hard time escaping. Silver prices fell from above $27.6 to near $27, down 2.3% during the day.
The euro gave back its gains. In addition, non-U.S. currencies also weakened collectively. The euro fell more than 70 points against the dollar during the day, hitting a low of 1.2065.
The British pound fell below the 1.41 mark. In addition to the euro, the pound was also under pressure to the downside. The British pound fell about 100 points against the dollar during the day, eventually losing the 1.41 mark.
U.S. oil rose slightly. Finally, take a look at the oil market. U.S. oil rose slightly during the day. U.S. crude oil inventories recorded a decrease of 427,000 barrels, lower than the previous value and expectations. Meanwhile, the IEA lowered its demand growth forecast for 2021. This reflects weaker-than-expected demand conditions in the first half of the year. However, the agency kept its demand growth forecast unchanged for the second half of the year and predicted that global crude oil demand will largely return to normal levels before the outbreak by the end of the year.
Gold: Lack of new buyer entry for gold expected to remain near 1820
The head of metals derivatives trading at BMO Capital Markets said there has been some profit-taking in the gold market following the rise in U.S. bond yields and a lack of new buyers entering. He expects gold prices to remain near $1,820, with $1,800 a key support level.
Euro: The euro will hold 1.2 in the short term and may fall towards 1.15 in the second half of the year
Danske Bank believes that the recent commodity trend poses a negative impact on the dollar, and the euro is expected to remain above 1.20 against the dollar in the short term.
However, the bank said that the economic recovery is shifting from goods to services, manufacturing PMI is slowing, monetary policy may be tightened in Asia, and the normalization of production levels will bring a catch-up effect. These factors will make the second half of this year peak inflation, the Fed is expected to shift to a hawkish stance, Europe and the United States will fall to 1.15.
Canadian dollar: strong fundamentals of the Canadian dollar U.S. and Canada look down to 1.1920
Credit Suisse believes that strong internal and external demand, active terms of trade and a fairly strong central bank combine to support the Canadian dollar. While valuation indications are at risk of consolidation in the near term, the USDCAD is still likely to fall below 1.1920.
20:30 U.S. initial claims may be lower than the previous value
First, let’s take a look at the initial jobless claims that will be released in the US. CNBC commented that the employment situation in the US improved significantly last week, with the number of first-time claims for unemployment insurance hitting a new low during the epidemic. While the job market still has a long way to go to fully recover from the damage of the epidemic, the pace of improvement has accelerated in recent weeks as restrictions on activity continue to be lifted.
Currently, the market expects the U.S. initial jobless claims for the week ending May 8 to be 490,000. If the release is much higher than expected, the dollar index may come under pressure; conversely, if the release is less than expected, the dollar index may strengthen.
As vaccinations continue to advance rapidly, the U.S. labor market is expected to recover further and initial claims may continue to decrease. The dollar index is expected to gain some support.
23:00 McCollum may remain confident in the economic recovery
Next, take a look at the upcoming speech by Bank of Canada Governor McCollum. In the last month, the Bank of Canada announced its interest rate resolution, leaving the benchmark interest rate unchanged at 0.25%, in line with market expectations. At the same time, the Bank of Canada lowered the size of its asset purchase program from C$4 billion to C$3 billion per week; at the same time, the timing of interest rate hikes is expected to advance to the second half of 2022. For his part, McCollum said the Bank of Canada is more confident in the underlying strength of the economy and that further quantitative easing adjustments will reflect the strength of the recovery. If the forecast is correct, the central bank may ease quantitative easing further.
Based on this, we believe that McCollum may remain confident in the recovery and may ease quantitative easing further if the economy continues to improve. If he is more optimistic than before, then the Canadian dollar could strengthen further, so you should also keep an eye on it.