USD Back in Driving Seat Following Fresh Data Beat

The US Dollar saw a fresh wave of buying yesterday as better-than-forecast PPI and hawkish Fed commentary combined to help lift sentiment further ahead of the weekend. On the data side, headline PPI came in at 0.7% in January, up from -0.2% the prior month with core PPI printing 0.5% up from 0.3% prior. With both readings beating estimates, this data marks the latest in a string of hot US economic data.

Following the numbers, we then heard from Fed’s Mester and Bullard. Mester argued that there had been a strong case for a larger hike last month while Bullard said that a larger 50bps hike could well be appropriate in response to recent data. While neither member is voting this year, if these comments reflect a shift taking place at the Fed this will raise clear upside risks into the March FOMC.

Key Factors for Today

• USD rallies on back of better-than-forecast PPI and hawkish Fed comments
• Equities slip back amidst fresh USD rally
• AUD under pressure despite RBA’s Lowe warning further to go on rates
• GBP slips as BOE’s Pill signals bank ready to slow pace of tightening
• Metals and oil heavily sold

Coming Up

• EUR – Eurozone current account
• CAD – Foreign securities purchases
• USD – FOMC’s Bowman speaks

Equities Slide on USD Rally

Equities markets softened from highs yesterday as fresh strength in the Dollar curtailed upside for now. The CAC 40 joined the FTSE in breaking out to fresh record highs this week before stalling. In the US, stock indices were hit hardest with the Nasdaq and S&P falling 1.7% and 1.6% respectively. If the prospect of a larger Fed rate hike in March starts to gain traction, we can expect equities to fall further near-term.

Applied Materials Beats Forecasts

In the US earnings season landscape, Deere & Co will be the only large cap reporting today. Yesterday saw tech stock Applied Materials reporting AMC with both earnings and revenues topping market forecasts. The stock had been lower over the session in line with the broader risk sell-off though looking ahead the outlook is favourable in line with positive Q1 guidance.

USD Rally Weighs on Risk FX

Extended strength in the dollar is weighing heavily on risk currencies ahead of the weekend with AUD and NZD both under pressure across the European open on Friday. Speaking yesterday, RBA governor Lowe warned that inflation is still too high in Australia and the RBA still has further to go on rates, warning also that the path to avoiding a hard landing is narrow.

GBP Falls Following BOE Comments

GBP has been among the weakest performers also, following comments from BOE chief economist Pill yesterday. Pill signalled that the BOE is ready to start slowing the pace of rate hikes in line with falling inflation, though warned there is still a way to go before inflation is back at target. Today, UK retail sales were seen coming in above forecasts at 0.5% vs -1.2% prior and -0.3% forecast.

Metals & Oil Heavily Sold

In the metals and commodities space, both gold and silver are under heavy selling pressure again today as a rampant USD drags metals lower. Both are now down sharply from YTD highs and look vulnerable to further losses near-term. Crude prices have come under fresh selling pressure today also with ongoing USD strength dampening demand for oil. Crude futures are now printing a fifth consecutive losing day amidst the USD rally.