Market Uneasily Awaits US Inflation Data After

Nervous markets await today’s all-important US CPI (inflation) data release, which will be the key influence upon the Federal Reserve’s monetary policy.

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1. Market focus has turned to today’s scheduled release of US CPI (inflation) data. Expectations have become more pessimistic after yesterday’s release of higher-than-expected US PPI data which is usually strongly correlated with inflation. PPI was expected to rise by 0.2% month by month but in fact rose by 0.4%, and CPI is also expected to show a monthly increase of 0.2%. If CPI increases by more than 0.2%, it will likely trigger a selloff in stocks and boost the US Dollar and treasury yields.
2. The minutes of the most recent FOMC meeting were released yesterday. They showed that members raised their assessment of the path of rate hikes which will be required and emphasized the importance of prioritizing the fight against inflation and the perceived real danger of a wage-price spiral, adding to the bearish mood in the markets.
3. British GDP data released yesterday showed a surprise month-on-month contraction of 0.3% when the rate has been expected to be unchanged. Despite this, and the Bank of England’s clarification that its gilt purchases will end this Friday, the British Pound managed to gain some value over the day, although British treasury yields rose sharply to reach new 20-year highs.
4. After making a bullish breakout yesterday, the USD/JPY currency pair continued to advance firmly to a new 24-year high just below the round number at ¥147. However, the price has been consolidating in recent hours, and the Japanese Finance Minister Suzuki made a veiled warning of intervention towards the end of the Tokyo session. The last time the price of this currency pair got near ¥146 the Bank of Japan successfully intervened to drive the price considerably lower, but it has been steadily trending higher ever since, suggesting the Bank will find it difficult to permanently suppress the price if it wishes to. The Bank may begin to intervene practically at any moment.
5. Stock markets are weak. The worst-performing major stock index is the Hang Seng Index which is continuing to fall with strong bearish momentum to the lowest prices seen since 2011. The S&P 500 Index yesterday made its lowest daily closing price since the coronavirus panic of 2020.
6. The AUD/USD currency pair briefly traded at a new 2-year low yesterday.
7. Daily new coronavirus cases globally rose last week for the first time since July, although the overall number is relatively low.
8. It is estimated that 68.2% of the world’s population has received at least one dose of a coronavirus vaccination, while approximately 8% of the global population is confirmed to have contracted the virus at some time, although the true number is highly likely to be much larger.  
9. Total confirmed new coronavirus cases worldwide stand at over 628.3 million with an average case fatality rate of 1.04%.  
10. The rate of new coronavirus infections appears to now be significantly increasing only in Austria, Finland, Germany, and Italy, Liechtenstein.