Traders have been given a lot to digest this in recent days. This week we have learned that US inflation is easing, but also that the FOMC expects a recession this year, so it's one of those ‘good news/bad news’ situations for investors. But based on the upswing of global equities and risk-assets, it’s seems that the market is taking a glass-half-full approach to this conundrum.
Coming on the back of lower CPI data, US PPI also came in on the cooler side which means that lower wholesale prices paid should also feed through to the retail market. And importantly, core PPI also eased (which excludes food and energy), all of which points to the current US rate-hike cycle being either at or very close to the peak setting.
With traders focusing on the softer inflation data rather the Fed’s recession warning, risk-assets rallied while the US Dollar descended sharply on the re-priced yield outlook. While the FOMC may be close to the terminal rate setting, other central banks around the globe still look like they have a way to go, and this prospect saw the greenback experience sharp declines across the board.
In particular, the Euro was one of the standout performers on the currency front courtesy of the apparent divergent paths of the ECB and the FOMC. The EURUSD rate is currently trading around 1-year highs above the 1.1050 level.
Elsewhere, the Aussie Dollar rediscovered its mojo to now be within sight of the US$0.68 level, with surprisingly strong employment data boosting the currency. The headline numbers were solid, but when digging a little deeper it was the growth in fulltime employment which was most notable. This robust employment read, combined with a fall in the USD and a rising gold price has turned the AUD’s fortune’s around in recent trading sessions. The AUDUSD rate was last seen trading at 0.6780 on Friday, an advance of 1c from the day before.
The gold price continues to shine against the current backdrop of falling US yields and the resulting greenback depreciation. This amounted to another upside move from the precious metal which continues to approach historical highs. The spot gold price was last seen trading at US$2045. Meanwhile, the oil price eased back on some profit-taking. Global growth concerns gave investors a reason to take some positions off the table, but the scenario of a falling USD should still provide some support to the oil price at current levels.
Asian equities were mostly in the green today (at the time of writing) thanks to the upbeat lead from Wall Street. However, the ASX200 was a little more subdued after Thursday’s strong local employment data and its possible implications for interest rates. Traders will now turn their attention to upcoming US retail sales data (due Friday US time) see if there is more reason to extend the buying streak for risk-assets.
‘General Advice only. All trading involves risk.’