Calm Before the Storm? Markets Reflect Uncertainty Ahead of US CPI

Traders are hoping that today’s US CPI print will shake markets out of the lull they’ve been in so far this week. We’ve seen tepid action over Monday and Tuesday following the volatility we saw in response to the NFP on Friday. On the back of a strong set of labour market readings, should today’s US CPI reading show any unexpected strength, we’ll likely see a lift in pricing for a June rate hike which should send USD higher while pulling risk assets lower. Should CPI confirm a further fall in inflation, however, USD should weaken while stocks move higher.

Key Factors for Today

• Uncertainty seen ahead of US CPI – June rate expectations in focus
• Hawkish ECB comments support EUR
• US debt ceiling talks fail to produce resolution

Market Movers

• S&P falls below $4120
• Gold back above $2020
• BTC holds at Monday’s lows
• EURUSD rallying

Econ Calendar

• USD CPI (1.30pm)
• EIA Oil Inventories (3.30pm)
• SNB’s Jordan Speaks (5pm)

Earnings

• Walt Disney
• The Trade Desk
• Unity Software

Markets Waiting for US CPI Tomorrow

US debt ceiling uncertainty is also keeping markets constrained. The latest round of talks between Biden and Speaker of the House Kevin McCarthy ended without resolution yesterday, though the two have agreed to continue on with talks ahead of the deadline in two week’s time.

On the US earnings front, shares in Airbnb fell after the bell yesterday. The company reported better-than-forecast Q1 results though revenues were down on the prior quarter. Additionally, the company offered a damp outlook on the current quarter despite Q1 seeing the firm post its first net-profitable quarter in its history. Airbnb beat on both earnings and revenues citing the continued lift in demand linked to the post-pandemic recovery and the increase in WfH numbers as key drivers. Year-on-year, revenues were 20% higher.

Gold and oil were both seen rising yesterday against a weaker USD backdrop. However, both markets are under pressure today across early European trading as traders brace for US CPI later today. Bitcoin prices remain flat across the week on the back of the sell off seen on Monday. While still sitting at the foot of that decline the market remains vulnerable to a further drop lower unless today’s inflation data causes a reversal higher.

In FX, a weaker start for risk assets has seen JPY performing well again on Wednesday. Safe-have demand is keeping the yen underpinned here with the Swiss Franc also benefiting from a flight to safety as traders tread carefully ahead of today’s US inflation print.

EUR has been a little firmer today also. ECB’s Schnabel was seen calling on the ECB to push ahead with further rate hikes in order to bring down inflation. These comments echo those of ECB’s Lane earlier in the week who warned that there was still upward momentum in core inflation which needed to be tackled.