US CPI lifts stocks, dollar dips
Volatility was low for much of the session as traders awaited the US CPI data, and then activity picked up on release of the announcement. Headline CPI held steady at 5.4%, slightly ahead of estimates, while the core reading cooled to 4.3% from 4.5%. The news helped equity markets and it encouraged traders to take profit on the dollar. As far as stocks are concerned, the CPI update was the best of both worlds, as it showed us that demand is healthy, which is needed to push along the rebound. Some critics of the Fed’s ultra-loose monetary policy have cited the higher cost of living. Considering that CPI remained flat, it should take some of the pressure off the US central bank, allowing it to maintain its very generous stimulus package.
European markets are up on the day and fresh records were seen on the Dow Jones and the S&P 500. Since the banking crisis in 2008, central banks around the world have been quick to throw money at a problem, and that has been a massive driver behind the exceptional rally witnessed in stocks. Judging by last week’s US jobs report, it is obvious the economy is recovering and at some point, the Fed will probably adopt more hawkish language, but judging by today’s data, that is not likely to be soon.
Earlier today, the US dollar rose for its seventh consecutive session, but it retreated in the wake of the CPI data. In recent months, traders witnessed inflation grow at a very fast rate, so now when the CPI level stands still, it suddenly feels like a shock. It is worth noting the CPI rate is still the highest in 13 years, but the fact it didn’t increase again, could be a sign that things are plateauing. GBP/USD is a little lower, while AUD/USD is up over 0.2%.
Gold has been given a lift by the dip in the US dollar. The metal suffered a flash crash on Sunday night and since then, some traders have avoided it due to fears it might take another sharp leg lower. Now that some of the heat has been removed from the greenback, we might see bargain hunters swoop in on gold as it is still way below Friday’s closing price.
WTI and Brent crude are in the red as President Biden called on OPEC to increase output in a bid to take the pressure off energy prices in the US. The move is reminiscent of his predecessor, President Trump. Biden isn’t as erratic as Trump, so the organisation might not be too quick to give in to his demands, especially as division remains within the group with respect to output. The EIA report showed that US stockpiles fell by 447,000 barrels, while the consensus estimate was for a 1.2 million-barrel drop.