aAfter the sell-off seen on Monday, European stocks enjoyed a nice rebound yesterday, helped by stabilization in US markets, which have had a difficult start to the year.
The decline in the Nasdaq 100 has been particularly notable, although it continued what we saw late on Monday in the wake of yesterday’s testimony, as Fed Chairman Jay Powell delivered a fairly convincing performance in front of US lawmakers at his reconfirmation hearing. . , helping US stocks end their first mass positive in more than a week.
Powell stressed that while the Fed was about to start getting the ball rolling on the normalization process that has taken a more positive tone as a result of the inability of US Treasury yields to build on their recent gains, it will be a long process from where we are now. Huh.
His remarks that the subject of balance sheet shrinkage will have a lengthy and detailed discussion also suggest that the central bank is wary of the dangers of going too quickly in reducing liquidity, although he was clear to emphasize that That the Fed was too alive to the risk of acting too slow in mitigating inflation risks.
Powell’s calm tone appears to resonate with concerns that emerged from last week’s Fed minutes, when markets reacted to the possibility that balance sheet reductions would be made in a way that could be untenable. Yesterday’s rally suggests that some of these concerns may be allayed.
Markets in Europe are set to open higher on the back of yesterday’s US rebound and a decent Asia session, which was helped by some soft China inflation numbers, as we await today’s US CPI report for December, which may once again increase volatility. , if we get a number well north of 7%.
The recent decision by the Federal Reserve to increase its tapering program to $30bn a month confirmed that Fed officials are now more concerned about inflation than the labor market.
With the March rate hike now almost complete, today’s US CPI is likely to be a key sign in the wider discussion of how much further hikes are coming down the pipe, as central banks wrestle with the dilemma of rising price pressure. There are risks of an economic slowdown due to tighter restrictions and declining consumer confidence.
The US CPI rose to a 39-year high of 6.8% in November, a trend that looks set to continue with today’s December numbers, given that the PPI is already up close to 10%.
The PPI, which is due tomorrow, has become a leading indicator for the CPI over the past 12 months, and while we saw a pause in the headline CPI during the summer months, stagnant at 5.4%, we saw a sharp acceleration since It’s October.
Various restrictions imposed through Q4 have shown no signs of slowing down regarding a sharp rise in energy prices as well as supply chain disruptions.
Over the same period, the PPI has been rising steadily since April, rising by 6.2 per cent and hitting a record high in November. Even excluding food and energy, we’re still at 7.7% on the PPI, which means there’s a real chance we could move the headline CPI above 7% today, and beyond 1982 At higher levels than above, the PPI is potentially moving through 10. % Tomorrow.
EUR/USD – Continues trading between trend line support just below 1.1280 and resistance at 1.1385 area and December peak. The bias remains on the downside; However, we may see higher pressure on the 1.1420 move in the near term.
GBP/USD – There appears to be an upside break, with the potential for a break above 1.3620 to 1.3730, and the 200-day MA, breaking above the trend line resistance from last year’s peak of 1.4250. Support remains at 1.3420 and last week’s low.
EUR/GBP – A pullback is observed in the lack of follow-through below 0.8330, but bias remains lower towards 0.8280 and 2020 lows. Resistance is found at the 0.8380 level and behind it at 0.8450.
USD/JPY – While support at 114.80 remains biased towards a return to last week’s peak of 116.35, and then the December 2016 high at 118.60. A mover below 114.70 targets a return to the 113.80 area.