- US April CPI +8.3% y/y vs 8.1% expected
- Fed's Bullard says 50bp interest rate rises at coming meetings a good benchmark for now
- Fed's Bostic: Fed understands inflation is too high
- Draghi floats the idea of some kind of consumer-cartel to cap oil prices
- US April federal budget balance +308B vs +226B expected
- Dallas Fed names Lorie Logan as its new President
- U.S. Treasury auctioned off $36 billion of 10 year notes at a high yield of 2.943%
- Today's speech from ECB President Christine Lagarde was monumental
- Lagarde and Schnable speeches are a clear tactical shift from the ECB and a call to arms
- The ECB communication offensive continues, this time with a 'sources' report
- US weekly EIA crude oil inventories +8487K vs -457K expected
Markets:
- Gold up $13 to $1851
- WTI crude oil up $5.46 to $105.21
- Nasdaq -3.2%
- S&P 500 -1.6%
- US 10-yiear yields down 6.5% to 2.93%
- JPY leads, GBP lags
The market was leaning towards a 'peak inflation' trade in the countdown to the April CPI report so when the numbers came in hot, there was an immediate rout in both stocks and bonds. The US dollar initially jumped.
The second act was more of a mystery as those trades quickly and completely (or more) reversed. For example, cable fell to 1.2280 from 1.2350 initially, then rallied 120 pips to 1.2400.
The reasons for the reversal are unclear. It could have been position squaring or short covering or a reflection of the hawkish shift from the ECB (which I believe isn't yet appreciated). In any case, the dollar then began to slowly reassert itself and eventually got back near the highs of the day. In the case of cable, that pair fell 150 pips from the highs to mark a new cycle low.
Elsewhere it was more of a double round-trip. Ultimately, if you ignore the big wobble in the middle, the price action was about what you'd expect -- stocks down and the dollar up. Notably, the bond selloff was counteracted once again by risk aversion. US 30-year yields rose up to 3.21% from 3.09% and then fell all the way back down and more to 3.04%. 2s rose to 2.74% from 2.62% only to completely retrace.
Technically, the dollar mostly stayed in its recent ranges with cable being the exception. But the euro, Aussie and kiwi now aren't far off. The loonie was spared to some extent by the strong bid in energy. USD/JPY has been the big trend of the past three months but it's gone sideways now for two weeks as 1.30 proves sticky.
