Persistent US Inflation Boosts Dollar, Sinks St

US CPI data yesterday showed inflation is still rising in the US, and at a higher rate than expected, sending the Dollar strongly higher and severely knocking stocks and other risky assets.   

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  1. US CPI (inflation) data released yesterday showed prices increased by 0.1% month-on-month when they had been expected to fall, creating an annualized rate of 8.3%, slightly down on last month’s 8.5% but higher than the 8.1% which had been expected. The data had a strong effect on markets as it showed inflationary pressure is still persistent in several sectors and increases the chance that the Fed will hike by a full 1% at its next meeting and not the 0.75% which still barely remains as the consensus forecast. This more hawkish sentiment on the Fed had the effect of strongly boosting the US Dollar while strongly hitting global stock markets and other risky assets, and in pushing the 2-Year Treasury yield to a multi-year high at 3.8% and deepening the inverted yield curve. The S&P 500 Index had its worst day in two years yesterday, while the Asian indices the Nikkei 225 and the HSI are both down by more than 2%.
  2. In the Forex market, the US Dollar is mostly holding its gains. The Bank of Japan reportedly conducted a rate check late in the Asian session to signal its preparation to intervene in favour of the Yen, after the USD/JPY currency pair rose very strongly to again approach close to the ¥145 level, which seems to have become a red line for the Bank. The sent the USD/JPY price back below the ¥144 level. Japanese policymakers are also trying to talk up the Yen. There is still a strong, long-term bullish trend in the US Dollar, and we are likely to see the currency continue to advance over the coming days, with the British Pound and the commodity currencies looking particularly weak.
  3. There will be releases today of UK CPI (inflation) data, US PPI data, and New Zealand GDP data. These could cause volatility, with the UK data being especially likely to affect the British Pound. Annualized UK inflation is expected to be 10%.
  4. Daily new coronavirus cases globally dropped last week for the eighth consecutive week, giving rise to the hope that the pandemic is finally over in any meaningful sense.
  5. It is estimated that 67.8% of the world’s population has received at least one dose of a coronavirus vaccination, while approximately 7.8% of the global population is confirmed to have contracted the virus at some time, although the true number is highly likely to be much larger.  
  6. Total confirmed new coronavirus cases worldwide stand at over 614.8 million with an average case fatality rate of 1.06%.  
  7. The rate of new coronavirus infections appears to now be most significantly increasing in Taiwan and Russia.