US Inflation Expected to Fall to 6% Today

US CPI (inflation) data due today will be closely watched, as if it does not show an expected decline, it will put strong pressure on the Fed to hike rates despite the ongoing banking crisis following the failure of two major US banks.

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1. There will be a release of US CPI (inflation) data today, which is expected to show that the annualized rate declined last month from 6.4% to 6.0%. If the decline is much less than expected, or if there is no decline or even a rise in inflation, this will cause a lot of volatility in the market as the US Federal Reserve is now in a position where it will find it extremely difficult to hike rates at its next meeting on 22^nd March due to the ongoing banking crisis.
2. There have been no further material developments in the US banking crisis, with no more banks failing following Silicon Valley Bank and Signature Bank. However, shares in several major banks plummeted yesterday and trading in many of them was suspended.
3. US Treasury Yields have continued to fall hard following the backstop news, with 2-year and 10-year yields making unusually strong and fast drops. The 2-Year Treasury Yield has fallen from over 5% to as low as 3.99% in only 4 days, as a growing market consensus expects on Fed rate hike at the next meeting, or at most only a 25bps hike.
4. The US Dollar has continued to fall, reaching a new 1-month low yesterday, as it has been doing over recent days, due mainly to the difficulty the Fed will now face in hiking rates any further, but also due to fears of further US bank failures. In the Forex market, the US Dollar has recovered during the Asian session, with the New Zealand Dollar today looking strong while the Japanese Yen looks weak. Markets are very volatile, and this movement is counter-trend – important price movements will be driven today by US inflation data and any further news from the banking crisis.
5. Stock markets have mostly traded lower over the past day, led down by bank stocks.
6. Some commodities are performing very well, with a few continuing to rise after having recently made significant bullish breakouts, notably Sugar. The price of Gold rose very strongly yesterday to trade as high as $1914 an ounce.
7. There will be a release of UK claimant count change data today, which is expected to show there was a minor increase in UK unemployment last month.