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Jasper Lawler Market Strategist, CMT
Analysis, Market Analysis | March 15, 2023


CPI Affirms “One And Done” Narrative

US inflation rose but fairly matched expectations, putting the Fed in a difficult position amid the banking turmoil. Stocks gained as risk appetite shifted once again. However, the dollar and other currencies ended pretty much mixed as futures now imply a balanced 25bps rate hike at the next Fed meeting and pause.

Chart: EUR/USD

Key Factors for Today

  • Matching inflation prices in for Fed to hike 25bps and pause
  • Risk aversion takes over Europe after Credit Suisse collapse
  • BOJ minutes add a little to a dovish narrative
  • Brexit NI deal faces objections already
  • WTI back to 70s after API build

US CPI Fairly In Line With Expectations

CPI inflation came in at 6.0%, matching forecasts, and affirmed expectations that the Fed will hike by a quarter point next week. Core services figures rose 0.5%, at the fastest pace since last September and 10bps above forecasts, keeping Fed under pressure. The 2 to 10-year yield spread flattened to – 70bps as the “one and done” rate hike narrative consolidated. Gold fell 0.52% to $1903 per ounce on increasing profit-taking, with the round handle offering significant directional signals.

Risk Aversion Theme for Europe

Yesterday’s European session was dominated by risk aversion after Credit Suisse announced it found weaknesses in internal control mechanisms. Peripheral yields fluctuated while German bonds fell. Markets moved to price in just a 25bps hike from the ECB instead of the widely expected 50bps and a pause afterwards. EUR/USD hit a 1-month high of $1.0761 before settling at the open, with $1.07 back on the radar.

BOJ Offers to Buy Less in JGBs on Lower Yields

BOJ minutes from January reiterated the importance of easing policy. Japanese Finance Minister Shunichi Suzuki said he sees wage gains in large companies, with labour negotiations expected to conclude soon. He added that there was no need to provide liquidity in Japan when responding to a question about SVB. USD/JPY rose 0.80% on Tuesday but failed to tap 135.00, with 134.22 acting as intraday support.

Windsor Framework Encounters Objections

Northern Ireland DUP Leader Jeffrey Donaldson said that the Windsor framework deal with the EU meant to overcome the Northern Ireland Protocol requires further “clarification” but stopped short of outright rejecting the proposal. The pound traded 0.22% lower to $1.2154 on Tuesday, partially impacted by the job data miss. $1.21 is the next support if $1.22 holds firm.

Weekly API Sends WTI for Cover

OPEC’s monthly report maintained its global oil demand growth forecast at a 2.32M bbl/d increase this year. Separately, the US Department of the Interior withdrew its objection to the Willow Oil Project, not allowing drilling in parts of Alaska wildlife refuge. Combined with the weekly API ground inventories showing a 1.2M bbl build vs a 3.6M drawdown, WTI fell 4.30% to $71.50 per barrel. Losing $70 brings $66 per barrel into focus.

On The Docket

  • French inflation
  • EA industrial production
  • 30-Year mortgage rate
  • US PPI, NY manufacturing and retail sales
  • EIA crude oil inventories
  • UK spring budget

Fx 1-Day Relative Performance (USD)

  • Yen and kiwi are down 0.41% and 0.31%
  • Swissy 0.05% lower
  • Aussie and euro are up 0.05% and 0.02%
  • Pound and loonie unchanged
  • Gold and silver are down 0.39% and 0.98%
  • Crude and brent 1.19% and 1.11% higher
  • Natural gas is up by a mere 0.12%
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