Inflation, growth fears woo bears after hot US CPI, USD renews 20-year high

Risk-aversion intensifies early Thursday as Asian/European traders react to the firmer US CPI for April, as well as growing fears from the UK and China’s covid concerns. However, mixed comments from the Federal Reserve (Fed) policymakers weighed on the US Treasury yields, even if USD bulls manage to cheer fresh high since 2002.

The greenback's strength failed to drown gold as yields remain weak. Though, the Antipodeans and oil prices have to bear the burden of pessimism. 

Weaker inflation expectations from Australia exert additional downside pressure on the AUDUSD whereas the softer UK GDP for Q1 2022 and other monthly data pushed GBPUSD towards renewing a two-year low.

Cryptos aren’t saved amid the flight to safety whereas equities in Asia-Pacific, as well as Europe, remain weak by tracking Wall Street losses.

While the risk-aversion keeps traditional safe-havens on the bull’s table, especially the US dollar and the yen, today’s US PPI will be important to watch for fresh impulses.

Following is the list of major assets’ latest performances:

• Brent oil reverses bounce off fortnight low, down 2.0% near $105.00.
• Gold struggles around $1,850 as nine-month-old support and 200-DMA test bears.
• USD Index stays firmer above 104.00, near the highest level since 2002.
• FTSE 100 drops 0.70% while DAX loses 1.30% and EUROSTOXX50 fall over 1.70% at the latest.
• Dow Jones dropped 1.0% but S&P 500 declined 1.65% whereas Nasdaq slumped 3.18% on Wednesday.
• BTCUSD and ETHUSD both remain pressured around the lowest levels since late 2020 and April 2021 respectively, around $27,850 and $1,900 in that order.

No mercy for bulls!

With the US CPI and core CPI both rising past downbeat expectations, hopes of a relief rally waned of late. Adding to the market’s fears were headlines from China suggesting no major improvement in covid conditions and extension to the lockdowns in Beijing and Shanghai. This, together with the Russia-Ukraine crisis, strengthened the fears of global economic slowdown and bolstered the US dollar’s safe-haven demand, fueling the US Dollar Index (DXY) towards a fresh 20-year high.

The Reserve Bank of New Zealand’s (RBNZ) firmer inflation expectations couldn’t save NZDUSD but the AUDUSD failed to witness any improvement in Consumer Inflation Expectations and failed to witness demand amid a broad USD rally. Further, GBPUSD bears the burden of downbeat data that justifies the Bank of England’s (BOE) economic fears.

Elsewhere, oil prices dropped amid firmer USD and hopes of easing output from Iran, not to forget higher inventory addition. Gold, on the other hand, remains lackluster due to the four-day downtrend of the US Treasury yields and also due to the metal’s traditional safe-haven status.

Growing fears join the US Federal Reserve’s semi-annual Financial Stability Report to add to the cryptos’ weakness. On the same line was news that the US Democratic Party members proposed more regulations for stablecoins.

Overall, it’s a rare show of extended risk-off that hit the investor sentiment and riskier assets like equities, commodities and currencies.

⏫ 🟢 Strong buy: USDJPY, USDCAD

⏬ 🔴 Strong sell: Nasdaq, silver, AUDUSD, GBPUSD

⬆️ 🟢 Buy: USD Index

⬇️ 🔴 Sell: DAX, FTSE 100, brent oil, gold, ETH/USD, BTC/USD

US PPI eyed but no more room for optimism

Given the higher importance of inflation and its negative implications on growth, especially when the central bankers rush towards tighter monetary policies, today’s US Producer Price Index (PPI) for April will be important to watch.

Should the factory-gate inflation manage to follow the CPI prints, there’s no stoppage for the US dollar, which in turn could weigh on prices of gold, crude oil and Antipodeans.

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