CPI Preview: Is inflation close to peaking?
The US releases CPI on Thursday morning. After a surge to 7% YoY for December, CPI is expected to have increase to 7.3% YoY in January. In addition, the January Core CPI, which excludes food and energy, is expected to increase to 5.9% from 5.5% last. Remember that the Fed targets 2% inflation!
Indeed, this will be an important data print for the Fed. Recall that Fed Chairman Powell said during his press conference after the last FOMC meeting that in his view, inflation risks are still to the upside and that inflation could be higher for longer than expected. In addition, he noted that we are not making progress on the supply chain issue. He also said the “committee is of a mind to raise rates at the March meeting.” The main issue markets are focusing on now is : Will it be a 25bps hike or a 50bps hike? Markets are also wondering how soon the Fed will begin unwinding its bond holdings after the first hike. If the print is higher than expected, this may happen sooner than later.
On concerns of rising interest rates, bond yields are moving higher. The benchmark 10-year yield traded as high as 1.97% on Tuesday, its highest level since July 2019 and just a few basis points below the psychological round number 2% level. Notice that the RSI is diverging from yields, a possible indication that they may pullback a bit before resuming the larger trend higher.
Source: Tradingview, Stone X
On a 240-minute timeframe, 10-year yields have been moving higher after breaking out of a pennant formation on February 3rd. The target for the pennant is the length of the pennant “pole” added to the breakout point. In this case the target is near 2.14%. However, for it to get there, yields must first pass through the psychological round number resistance level of 2% and then the 161.8% Fibonacci extension from the high of January 19th to the low on January 24th, near 2.023%. First support is at the high of January 19th near 1.902%. Below there is a confluence of support at the near the apex of the pennant between 1.743% and 1.80%, and then the January 19th low at 1.694%.
Source: Tradingview, Stone X
If inflation comes out as expected on Thursday at 7.3%, it will be the highest level since February 1982! However, traders will still be searching as to when the peak will be made for CPI. Will US yields continue higher? Or will the Fed start raising rates, possibly even by 50bps in March in order to stem the rise? Thursday’s CPI result may give traders a clue.
This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.
StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.
In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.
StoneX Financial Pte. Ltd. is not under any obligation to update this report.
Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.
ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.
City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.
The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.
The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.
The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.
StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.
This advertisement has not been reviewed by the Monetary Authority of Singapore.
© City Index 2024