There had been a lot of questions and much anticipation around US CPI and today’s release didn’t disappoint with the 4.2% headline and 3% core numbers coming in way above estimates of 3.6% and 2.3% respectively. That is the biggest headline number since 2008 and core print month-on-month since 1995. The index for used cars and trucks rose a whopping 10% in April, which accounted for over a third of the seasonally adjusted increase and was the largest one-month increase since records began in 1953! Markets have reacted accordingly with Nasdaq futures down 1.5%, the dollar higher and gold initially extending its losses.

Bond yields pushing up

The market has been wracked by inflation concerns this week as commodity prices continue surging higher with numerous raw materials now at multi-year highs including copper, iron ore and corn. The debate over whether these increasing price pressures will be persistent enough and not “transitory” to force the Fed to change its course will no doubt continue. That said, the bond market and yields hadn’t budged a great deal over recent sessions, trading around 1.60%. Surely if inflation is a major issue, these yields should be alot higher, which means support for the dollar and not so growth stocks?

Sterling proving its mettle

UK GDP was released earlier today and the hit to activity in the first quarter (-1.5% q/q) was pretty resilient and less bad than originally feared at the start of the quarter. The fact the economy managed to grow 2.1% in March despite a lockdown being in place shows that there are some green shoots on the horizon! Momentum is growing into the second quarter which will only benefit more as restrictions are eased. There is also good survey evidence for April that is robust and bodes well for a bumper summer.


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GBP is the leading major this month and the positive vaccine rollout and contagion should put a floor under the currency. EUR/GBP is now trading at five-week lows just below its mid-April low and with resistance above at the 50-day SMA around 0.86. Bears are eyeing up the long-term cycle lows at 0.8472 with the MACD looking good for more downside.

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