Inflation is slowing, but not fast enough…
Stay cautious, and reduce risk until more clarity is achieved
The US April inflation data showed that prices rose at +8.3% when measured against the prices last year, a slower pace than the +8.5% of March, but still higher than market expectations of 8.1%.
What this means is that though we may have seen the peak in inflation, it is still not slowing down as fast as the market had hoped for. As a result, it is likely that the US Federal Reserve will continue to talk tough and hike interest rates as planned in the months ahead.
Investor sentiment remains fragile, and the drama in the cryptocurrency market (where a stablecoin which was supposed to be pegged at USD$1 has fallen to $0.3 at one stage) is not helping matters.
Volatility will remain high, and investors are hurting from the losses in various asset classes. As such, stay cautious, and reduce risk until more clarity is achieved.
TRADING TIP
Remove Fear and Greed
When you find yourself being overwhelmed by the rush of emotion and uncertainty during periods of wild market moves, it will help to take a step back from staring at the changing prices.
Instead, take a deep breath, ask yourself what the catalyst for the move is and how likely it is for the situation to persist. Look at the charts for levels that will be good for the exits and entries of the trades that you are thinking of, instead of instinctively rushing in to join the crowd.
Being unemotional is not easy to do but it is critical to your trading success!
DAY AHEAD
US Producer Price Index (PPI) data released tonight may have some impact on markets given that it is an inflation measure as well.
TRADING PLAN
1. Currencies:
EUR — Short the EUR. EUR remains weak.
2. Commodities: Uranium & Energy — Stay the course, but caution is warranted as the market is now in full risk aversion mode.
3. Stocks:
US Stock Index: The US stock market had yet another volatile day. It tried after the knee-jerk sell-off after the US inflation data which showed that inflation, though slowing but is still higher than expected. However, as the day wore on, new lows were made.
Single Stocks: TrackRecord Model Portfolio is tracking the broader market for now.
Key risks: US Federal Reserve policymakers’ comments will dictate how the market perceives future policy path for now. The Ukraine-Russia war rages on, but the market impact is limited for now.
Was this forwarded to you?
CLICK TO RECEIVE THIS IN YOUR OWN INBOX DAILY
WHAT HAPPENED YESTERDAY
- The US Consumer Price Index (CPI) for April showed that prices increased by +8.3% Year-on-Year (vs 8.1% expected), a decline from March’s 8.5%. The Month-on-Month figure came in at 0.3% (vs 0.2% expected), a decline from 1.2% in March. The core CPI number which strips out volatile components such as energy and food prices, showed that prices rose +6.2% YoY (vs 6% expected) against the previous month’s 6.5% and 0.6% MoM (vs 0.4% expected). All these numbers just means that the pace of price rises are slowing down from the torrid pace before, but it’s still higher than market expectations and still at a high level.
- The US 2 year Treasury Bond yield rose +0.04% while the 10 year yield decreased -0.08% to 2.91%, continuing its decline from the day before.
- The US stock market remained turbulent intraday as uncertainty about the path forward lingers. The S&P 500 fell by -1.65% (intraday high and low: +1.20% and -1.81%), the Dow Jones Index dipped -1.02% (intraday high and low: +1.31% and -1.12%) while the Nasdaq plummeted -3.06% (intraday high and low: +1.00% and -3.29%).
- The crypto market faced another day of despair as the Luna/UST drama bites once again. Bitcoin fell -6.1% to 29,113 while Ether plunged -11.2% to 2,078. UST was down as low as 23 cents within the day.
HEADLINES & MARKET IMPACT
U.S. inflation simmers, worst of price gains likely behind
Notable Snippet: U.S. consumer price growth slowed sharply in April as gasoline eased off record highs, suggesting inflation has probably peaked, though it is likely to stay hot for a while and keep the Federal Reserve’s foot on the brakes to cool demand.
That aspect was reinforced by the report from the Labor Department on Wednesday, which also showed underlying monthly inflation pressures building up again after a lull in March as airline ticket prices notched their biggest increase on record. Rents rose by the most since 2006, further squeezing consumers who also paid more for food and healthcare.
The consumer price index increased 0.3% last month, the smallest gain since last August as gasoline prices fell 6.1% after soaring 18.3% in March. That stood in sharp contrast to the 1.2% month-to-month surge in the CPI in March, which was the largest advance since September 2005.
The drop in gasoline blunted a 0.9% increase in food prices. The rise in food prices was broad, with the cost of dairy and related products surging 2.5%, the largest gain since July 2007.
WHAT WE THINK: It is premature to think that inflation has peaked just from a single slowdown in the latest data release. Stay updated on inflation numbers and keep a lookout for factors that will influence inflation as well.
For more actionable content with our levels and views, sign up for our Membership to get the full length version of our Dailies.
UK strikes new security agreement with Sweden and Finland
Notable Snippet: British Prime Minister Boris Johnson on Wednesday said he had agreed new deals with Sweden and Finland to bolster European security, pledging to support both countries’ armed forces should they come under attack.
Johnson signed the new declarations, described by Britain as “a step-change in defence and security cooperation”, during visits to both Sweden and Finland on Wednesday.
“What it says is that in the event of a disaster, or in the event of an attack on either of us, then we will come to each other’s assistance, including with military assistance,” Johnson said at a news conference in Helsinki.
Both are expected to join NATO, but both are worried they would be vulnerable while their applications are processed, which could take up to a year.
Asked if Finland would be provoking Russia by joining NATO, Finnish President Sauli Niinisto said Russian President Vladimir Putin would be to blame for any decision to join the military alliance.
WHAT WE THINK: This will bolster the security in the region as the Western nations become more united on this front.
For more actionable content with our levels and views, sign up for our Membership to get the full length version of our Dailies.
China may chalk up more debt as lockdowns hit the economy
Notable Snippet: China may have to issue more debt as it tries to keep growing in the face of Covid lockdowns that are stunting its economy.
The country has signalled in recent weeks that it still wants to meet its growth target of 5.5% this year.
China’s Politburo meeting on April 29 sent a “strong signal that policymakers are committed to this year’s GDP target despite downside risks from COVID-19 disruptions and geopolitical tensions,” ANZ Research analysts wrote in a note on the same day.
Chinese state media on Friday reported details of that Politburo meeting, in which officials promised more support for the economy to meet the country’s economic growth target for the year. That support would include infrastructure investment, tax cuts and rebates, measures to boost consumption, and other relief measures for companies.
WHAT WE THINK: While the issuance of more debt and fiscal stimulus seems like a positive environment for Chinese stocks, it is rash to rush into buying stocks now given the current bleak situation.
For more actionable content with our levels and views, sign up for our Membership to get the full length version of our Dailies.
SENTIMENT
FX
STOCK INDICES
Best,
Phan Vee Leung
CIO & Founder, TrackRecord
