Ian Reynolds
Still Higher For Longer
With US CPI and PPI looking good, you'd think sentiment towards risk assets would be positive...
[FX Street] The headline CPI in the US dipped to 5% from 6% the previous month, but core inflation increased to 5.6% from 5.5% the previous month. The shelter component decreased from the previous month but remained at 0.6% (vs. 0.8% the previous month). Shelter contributes 34.7% of CPI inflation. Many economists/analysts had predicted a drop, but while 0.6% MoM is lower than 0.8% last month, it is still a large number and, at roughly 35% of the CPI, a key contributor to the rate remaining well above the 2% target level.
Despite the sharp drop, the Fed's Barkin stated that he is still waiting for inflation to fall...which is correct. The headline and core inflation rates remain unchanged at 5% and 5.6%, respectively. Barkin stated that in order to kill inflation, inflation must hit the 2% target for a few months. The Fed's Daly was likewise unimpressed by increased inflation, stating that the Fed still has work to do on rate hikes.
Meanwhile, according to the Fed minutes, Fed staff predicted a slight recession by the end of the year. They also predicted that inflation would "step down markedly" this year and "sharply" the next year. At the same time, they stated that while economic risks are to the downside, inflation risks remain to the upside.
The room is spinning from all of the projections and comments, but Fed officials appear to be sticking to their guns on rates (with rates remaining high until 2024). They will continue to battle inflation - or pretend they will fight it - despite signs that it is decreasing despite increasing shelter costs. FXStreet.
Full CPI data here. Note the massive fall in gas prices, which may get reversed by the recent OPEC supply cut.
Gold, Silver and Bitcoin are a different story, still holding their ground for now.
In Case You Missed It
US CPI
US PPI
FOMC Minutes 12 April 2023 [FED]
Is The Banking Crisis Over ? [AFR]
Australia
Consumer confidence last week
Employment numbers last week
Australian consumers rejoiced at the RBA's decision to pause rate hikes, lots of press about a potential bottom in house prices and a feel-good kind of vibe in the press.
Only lasted until the employment numbers on Thursday which suggested Australia is at full employment and still putting on 50k new jobs a month.
With wage growth at 3.3% in Q4 2022 (old news) from ABS, this would suggest that with the current cash rate at 3.6%, there is very little chance of RBA meeting it's only policy mandate of getting "inflation" down to 2%.
Things may change but currently it looks like a policy error from RBA.
The Australian budget is in May ( to be confirmed on Tuesday 9 May, 2023 ) and we'll get some more concrete ideas on how Treasurer Chalmers is going to balance the budget.
Australia federal and state Budgets in focus- Albanese must say no to bailing out Andrews
AUD / USD Trade Update
Aussie up the stairs but down the lift-shaft.
Short 0.7000
Short 0.7100
Stop 0.6940
We were wrong on immediate direction as price spiked to 0.6805 on the employment numbers and a weaker dollar. Price broke back into the short-term bullish consolidation channel and even higher than the upper Bollinger Bands.
This short squeeze was short-lived as the price reversed all the way back to close below the trend channel.
Still watching and waiting....trade still has positive carry
This Week's Economic Indicators [London time]
