London 14/09/2022
The financial markets are still shaking with heavy turbulence after the US inflation announcement yesterday. After several interest rate hikes, after monetary policy tightening, and after lower oil prices, markets expected a de-escalation of the inflation to 8.1%, after the 8.5% in July. The actual result was 8.3% yearly and monthly, the inflation rose by 0.1% vs -0.1% that the markets estimated. These numbers acted as a red alert for the markets: a hard cure with many side effects but the patient is getting worse. Stock indices plummeted (SP500 -4.32% and NASDAQ100 -5.16%), and the US dollar performed a 2% rise as markets assess that the Fed will be much more aggressive in the near future to deal with the high inflation rates. There are already analysts that predict a 1% interest rate hike in the next week’s Fed decision.
Most of the commodities performed losses and the bond yields continued upwards with the US 10-year bond yield climbing to 3.45%, the highest price in the last 3 months.
In Europe, the President of the European Commission Ursula von der Leyen proposed an extra fiscal of 140 bn euros to deal with the energy crisis in the Eurozone. She also mentioned that there are plans for a revenue cap from electricity generator companies. Euro had a slight bullish reaction along with these statements but nothing important beyond that.
EURUSD (current price at 0.9995) turned bearish this week after the US inflation announcement. The US dollar strengthened significantly and caused the pair’s return on parity. The EURUSD remains in this price zone during the last hours, looking for a fuel that will develop a direction. Up to now and during this week, the macro results for the Eurozone are disappointing: the Economic Sentiment dropped to -60.1 from -54.9 last month and the industrial production decreased by 2.4% (year to year). Germany announced an 8.8% inflation rate in August, just as the markets estimated so there was no serious reaction. Given the energy problem in Europe, the ECB is more cautious in taking aggressive actions but after the US inflation announcement, the Fed (most likely) will be more active and this fact may be shown in next week’s interest rates decision. As long as the EURUSD remains below parity, the bearish scenario prevails.
GBPUSD (current price at 1.1558) is bearish this week, heavily affected by the dollar’s strength that has developed after the US inflation announcement. The current week contains a series of important economic announcements in the UK. The big surprise so far is the inflation which was announced at 9.9%, lower than 10.1% of the previous month and much lower than 10.2% than the markets estimated for August. The producer price index was also lower than expected and the markets are more puzzled now about what is going to happen in the following months. As per the rest announcements, the GDP and the industrial & manufacturing production were announced below markets’ expectations while the trade balance and the unemployment rate had better results. The major support for the GBPUSD remains a bit above 1.14.
USDJPY (current price at 142.82) is bullish this week following the results of the US inflation but it is obvious that something’s going on with the Japanese currency. Besides some economic announcements (industrial production -2% in August and producer price index at 9%) there’s a feeling (based on certain statements) in the last few days that the Bank of Japan may change its stance on the ultra-loose monetary policy. This case had one more piece of evidence after the Japanese Finance Minister Shunich Suzuki interview with Reuters today. Minister Suzuki said that recent yen moves have been quite sharp and if the yen continues to make such moves, the necessary action will be taken, without ruling out any options. Under these circumstances, the USDJPY does not have the expected performance due to the strong dollar. Below 140, the possibility of actions from the Bank of Japan earns more credits.
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