Fresh Rise in US Inflation Causes Turmoil Across Markets

Yesterday’s US inflation reading confirmed a monthly increase in CPI of 0.5%, a stark jump from the prior month’s -0.1% reading. While annual inflation was seen to have cooled slightly to 6.4% from 6.5% prior it too was above the 6.2% market forecast. US stocks were seen falling on the back of the data while USD rose as traders were left mulling the prospect of fresh hawkishness from the Fed in light of the uptick in consumer prices. The data was followed by hawkish comments from several Fed members with both Williams and Logan saying that the Fed was not yet done with rate hikes and calling for further action to bring inflation down sustainably.

Key Factors for Today

- USD rallies on fresh inflation spike and hawkish Fed comments
- Markets fall on Fed uncertainty as inflation rises
- Airbnb soars on earnings beat
- USD leads FX – GBP Falls as inflation drops again
- Metals and oil sink on higher USD – Gold down sharply

Coming Up

- USD – Retail Sales
- USD – Empire Manufacturing
- EUR – ECB’s Lagarde speaks

Equities Fall As US Inflation Bounces Back

Equities markets were knocked lower yesterday by the uptick in US inflation and subsequent hawkish Fed comments we heard following the release. Attention now shifts to today’s US retail sales. On the back of a stronger jobs report and higher inflation, there are upside risks into this data which might see equities pushed lower still if USD trades higher in response to the data. Even the FTSE is under pressure today, down almost 1% from yesterday’s fresh record highs.

Airbnb Soars on Better Earnings

In the US earnings season landscape, the big focus yesterday was on the rally in Airbnb shares which popped around 5% higher as the group posted better-than-forecast Q4 results. Airbnb posted EPS of $0.48 vs $0.22 expected on revenues of $1.902 billion vs $1.861 billion expected. Sadly, the bullishness didn’t extend to Coca Cola with the company’s stock plunging yesterday despite also beating earnings forecasts. The fall is even more perplexing given the group’s strong 2023 profit forecasts. Today, attention will be on Kraft Heinz and Shopify which are among the big names reporting.

King Dollar – GBP Falls on Weaker Inflation

The uptick in USD on the back of yesterday’s hot inflation reading has upset the FX landscape. Risk currencies have been among the hardest hit with both AUD and NZD falling back. GBP has been weaker today also on today’s UK economic data which showed CPI cooling to 10.1%, annually, last month from 10.5% prior. Core inflation was also seen falling to 5.8% from 6.3% prior. The news adds to the peak inflation narrative in the UK and has taken a little pressure off the BOE, sending GBP lower consequently.

Metals & Oil Plunge on Hot US CPI

In the metals and commodities space, both gold and silver have come under heavy selling pressure, extending the losses of prior weeks, in response to hotter US inflation. Gold prices are now down almost 7% from YTD highs, weighed on by a firmer USD. Crude prices have also turned lower this week as a stronger USD drags down the broader risk complex. Traders now await the latest EIA report, due today, which is forecast to show a fresh build in inventories, posing further downside risks for oil.