Forexlive Americas FX news wrap 11 Jan: CPI higher but gains in dollar and yields reverse.

US CPI was the big event for the day and the big event for the week as well. The month-to-month data showed 0.3% increases for both the headline and the core. The YoY saw the core come down to 3.9% vs 4.0% last month but it was higher than the 3.8% expected. The headline CPI YoY rose to 3.4% from 3.1% (higher than the 3.2% expected). Shelter – which the market has been waiting to come down – rose by 0.4%. YoY shelter is still elevated at 6.2% but was lower than 6.5% last month. Services less rent rose 0.6% MOM and 3.5% YoY.

Overall, Inflation is more sticky.

The US dollar initially moved to the upside on the data release, but those trends were reversed midday and into the close.

Looking at the US debt market, the yields initially moved higher, but has also reversed and moved lower on the day. More specifically:

• The 2-year yield moved to a high of 4.394% before reversing lower and trading to a low in the current hourly bar at 4.253%. The yield is now down -11.8 basis points on the day.
• The 10-year yield moved to a high of 4.068% before reversing to a low of 3.97%, down -5.9 basis points
• The 30-year yield moved to a high of 4.247% before moving down to 4.167%. The current yield is down -2.1 basis points on the day.

In the forex, the ups and downs that have been seen more recently, continued today despite the higher CPI data and an initial move higher in the US. The greenback is ending the day mixed on the day, but the pair was much higher before moving back lower into the close.

Overall, the JPY is the strongest of the major currencies. The CHF is the weakest (see rank above).

Looking at the major currency pairs vs the USD:

• The EURUSD moved to a high just short of the high from last Friday’s before the CPI at 1.0998 and fell all the way to support near 1.0929 after the CPI. The price is trading back at 1.0971 as we head into the close for the day.
• The USDJPY moved to a high of 146.40 and above the 50% midpoint of the move down from the November high. The move down has the price currently trading at 145.38 over 100 pips from the high.
• The GBPUSD before the data extended briefly above the high from December 29 and January 5th near 1.2771 (the high reached 1.2778), and fell all the way down to 1.2689. The price, since bottoming, has now reversed to 1.2765 just 13 pips short of the pre-number high

Central bankers were active today with Richmond Fed Pres, Barkin, Chicago Fed Pres. Goolsbee and ECB President Lagarde all weighing in with their views on the economy and policy.

Richmond Fed President Barkin:

Federal Reserve official Barkin, set to be a voting member in 2024, emphasizes the need for convincing evidence that inflation is heading towards the Fed’s 2% target, noting the current improvement is largely confined to the goods sector. He remains open to reducing interest rates once inflation aligns with the target and acknowledges that banks may now prefer higher liquidity levels post-pandemic. Despite the latest CPI data meeting expectations and a forecast for moderating inflation, Barkin points out a persistent “disconnect” in services and shelter costs. He stresses the importance of a broader inflation improvement beyond goods, recognizing the newfound pricing power in the service sector, which may persist until faced with consumer and competitor pushback.

Barkin doesn’t foresee a quick alignment of inflation expectations with the Fed’s target and notes that core PCE has been within the target range in recent months. He maintains a cautious stance, refraining from predicting future Fed meeting outcomes, and observes that current inflation expectations are not elevated. Barkin’s commentary reflects a careful approach towards monetary policy adjustments, focusing on a wide range of economic indicators and trends.

Chicago Fed President Goolsbee:

Chicago Fed President Austin Goolsbee, in an exclusive interview with Reuters, highlighed several key risks and perspectives on the Federal Reserve’s current monetary policy and economic outlook. He identified persistent housing inflation and potential supply shocks as significant risks to the economy. On policy adjustments, particularly regarding Quantitative Tightening (QT), Goolsbee expressed a preference for a high threshold for changes, valuing the ‘autopilot’ approach’s stability and effectiveness. He defers to the Fed Chair on the timing of discussions about QT adjustments.

Goolsbee also points out other concerns, such as the possibility of the Fed’s policies being too restrictive and the risk of rapid deterioration in the labor market. Unlike a year ago, he observes that the risks to the economy’s ‘Golden Path’ are more balanced, not just centered on the dangers of overheating.

Currently, he believes the Fed is still on this ‘Golden Path’, but acknowledges potential derailments. As inflation decreases, the Fed will need to reassess the restrictiveness of its policies. Decisions at the upcoming March meeting and beyond will be heavily data-dependent, and Goolsbee refrains from committing to any policy decisions before reviewing additional economic data.

Regarding Inflation he considers inflation to continue as the primary factor in determining the timing and extent of interest rate cuts. Goolsbee clarifies that his view on the federal funds rate is not the lowest among Fed policymakers’ projections, but closer to the median.

Despite challenges, he notes that the Federal Reserve is on a comfortable path and making progress in reducing inflation. He acknowledges that while persistently high shelter inflation in the CPI is a concern, it may have less impact on the Fed’s Personal Consumption Expenditures inflation target.

Goolsbee describes December’s services inflation as more favorable than expected, though housing inflation was less favorable. He concludes that overall CPI inflation in December aligned closely with expectations and highlights 2023 as a remarkable year for inflation reduction.

ECB President Lagarde

Meanwhile, ECB Lagarde was also talking and she expressed confidence in the European Central Bank’s handling of inflation. According to Lagarde, the ECB is effectively “winning the battle” against inflation and must persist to complete the task at hand. She believes that the most challenging phase concerning inflation has been surpassed. This optimism extends to the situation at the Suez and Panama canals, which she views as being under control and unlikely to significantly impact prices.

Lagarde expects inflation in the Eurozone will stabilize at 1.9% by the year 2025. However, she acknowledges the trade-off between combating inflation and economic growth, implying that efforts to curb inflation might lead to slower growth. In a positive light, she notes that salary increases are currently outpacing inflation, suggesting some relief for consumers. As for interest rates, Lagarde believes they have reached their peak, although she cannot predict when they might decrease. She emphasizes that any consideration for rate cuts would depend on data confirming that inflation is following the ECB’s projected path. This cautious approach underscores the ECB’s commitment to ensuring long-term economic stability in the face of uncertain global economic conditions.

Looking at other markets as US traders look to exit for the day:

• Crude oil moved higher but did give back some of the gains into the close. Tensions in the Red Sea sent all prices higher earlier in the session, but then rotated back to the downside. Recall from yesterday, crude oil inventory data in the US showed a larger than expected build in the oil, gas and distillates inventories. Concerns about global growth and production cards are all themes that are keeping the price basically between $69 and $74. The current process is trading at $72.14 at up $0.76 or 1.06%
• Gold prices are trading little changed at $2025.79. That’s up $1.64 or 0.09%.
• Silver is trading down $0.18 or -0.79% at $20.69
• the coin is trading at $46,889. Near the start of the US session the price of the digital currency was trading at $47,448. The long-awaited introduction of the bitcoin ETF’s

In the US stock market, the major indices are closing little changed. The Nasdaq closed marginally higher and extended its winning streak to 5 days. The S&P snapped its 4-day win streak. The Dow also rose by a modest amount. The final numbers are showing:

• Dow Industrial Average rose 15.29 points or 0.04% at 37711.03. For the trading week the index is up 0.65%.
• S&P index fell -3.23 points or -0.07% at 4780.23. For the trading week the index is up 1.77%.
• Nasdaq index rose 0.53 points or 0.0% at 14970.18. The Nasdaq index is up 3.07% for the week

In Europe today, the major indices moved lower:

• German DAX -0.86%. For the week, the index is down -0.28%.
• France CAC -0.52%. For the week the index is down -0.45%
• UK FTSE 100 -0.98%. For the week the index is there -1.47%.
• Spain’s Ibex -0.62%. For the week the index is down -1.57%
• Italy FTSE MIB -0.66%. For the weekly mixes down -0.51%

Tomorrow the US PPI data will be released as a follow-up to the CPI data today. Also, the earnings calendar for the final quarter of 2023 will be released with financials leading the charge. The following banks are all scheduled to release before the open:

• Citicorp
• JPMorgan Chase
• Bank of America
• Wells Fargo
• BNY Mellon

Next week, other financial institutions scheduled include

• Tuesday: Morgan Stanley, PNC, Goldman Sachs
• Wednesday Citizens Financial Group, U.S. Bancorp, Discover
• Thursday: Key Bank, M&T Bank, Truist, Northern Trust
• Friday: State Street, Comerica, Ally

Thinking about other earnings releases going forward? Below is a summary of the earnings calendar for some of the major companies:

• January 23: Netflix, 3M, Intuitive Surgical, Verizon, Johnson & Johnson, P&G
• January 24: Tesla, IBM, servicenow
• January 25: Intel, Southwest Airlines, Northrop Grumman
• January 26, Caterpillar, American Express
• January 30: AMD, Pfizer, GM, UPS, Stryker
• January 31: Microsoft, MasterCard, Boeing, Phillips 66, Boston Scientific
• February 1: Apple, Meta, Alphabet, Merck, Honeywell, Amazon
• February 2: Chevron, Exxon
• February 5: McDonald’s
• February 6: Ford, Chipotle
• February 7: Walt Disney, PayPal, McKesson
• February 8: ConocoPhillips
• February 9 PepsiCo

Thank you for your support. Good fortune with your trading (even in these volatile markets).