The FP Markets research team produce First Light News during the early hours of the European session, ensuring traders and investors have the news needed to begin their day.

Macro Wrap and Outlook

It was another relatively subdued trading session on Tuesday with limited tier-1 economic data. However, New York Federal Reserve President John Williams said it is premature to say that the Fed has finished raising rates. Williams also noted that the central bank would remain data dependent, though he expects the economy to grow this year.

The focus, nonetheless, remains on today’s US inflation print. In the twelve months to April, headline US inflation is forecasted to remain unchanged at 5.0%; however, the forecast ranges from a high of 5.2% and a low of 4.8%. Therefore, a print beyond these values could weigh on the next rate decision and increase market volatility.

The core reading—excluding food and energy—is anticipated to cool to 5.5% in the twelve months to April, following March unexpectedly jumping to 5.6% and snapping a five-month softening in core consumer prices. The forecast range for the aforementioned release resides between a high of 5.6% and a low of 5.3%. Month-over-month headline inflation for April is expected to increase by 0.4%, up from 0.1% in March, while the core monthly measure (April) is forecasted to remain at 0.4%.

Markets are currently pricing in a near-90% probability of no change at the next Fed meeting on 14 June, yet this may be a different story following the inflation data. The FOMC has clarified that they will act—increase the Fed Funds rate—if necessary.

Markets

Major US equity indices wrapped up Tuesday in the red. Weighed by materials (-0.9%), technology (-0.8%) as well as healthcare and communication services (-0.6%), the S&P 500 fell 18 points (-0.5%) to 4,119. Additionally, the Dow fell 56 points (-0.2%) to 33,561, the Nasdaq 100 was down 90 points (-0.7%) to 13,201 and the Russell 2000 erased 3 points (-0.2%) to 1,751. European indices also ended largely in negative territory, though Germany’s DAX finished flat. European equity index futures, nevertheless, are modestly higher at the time of writing, indicating a positive start to cash trading in Europe this morning. Overnight, Asia Pac equities followed US markets, trading lower across the board.

Ahead of the US CPI data, of interest is the Nasdaq Composite daily chart, touching gloves with the underside of resistance on the daily timeframe at 12,265. Given the lacklustre bearish presence here since April, a breakout to the upside is perhaps on the table, targetting resistance at 12,504.

(Trading View)

Across the FX space, EUR/USD tentatively put in a lower low on Monday at $1.0941, following the pair topping out just south of $1.11. This is by no means a reversal signal to the downside, given that the US Dollar Index is on the doorstep of breaching April lows (100.79) and reaffirming its seven-month downtrend. Of note is the Relative Strength Index on the daily chart of EUR/USD, threatening to overthrow the 50.00 centreline.

Both markets will be of interest today in light of the US inflation print. A lower-than-expected annual inflation number would likely underpin the EUR/USD to approach (and possibly engulf) $1.10 and potentially weigh on the Dollar Index to run for those April lows. Therefore, keeping an eye on the forecast ranges noted above could be an idea.

Major Currency Markets as of around 7:55 am GMT+1:

(Trading View)

Headline Events for the Day Ahead:

Annual US Inflation Rate for April at 1:30 pm GMT+1 (Expected: 4.9%; Previous: 5.0%).

Annual Core US Inflation Rate for April at 1:30 pm GMT+1 (Expected: 5.5%; Previous: 5.6%).

Month-Over-Month US Inflation Rate April at 1:30 pm GMT+1 (Expected: 0.4%; Previous: 0.1%).

Thanks for reading. Have a great day!

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