US open: Stocks rise despite headline inflation jumping higher

US futures

Dow futures +0.65 % at 34507

S&P futures +1.22% at 4463

Nasdaq futures +1.8% at 14262

In Europe

FTSE -0.3% at 7635

Dax +0.01% at 14250

Euro Stoxx  +0.4% at 3856

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Stocks rise, core inflation misses forecasts

US stocks are heading higher despite stronger than forecast US headline inflation. The Nasdaq is outperforming, paring some of the heavy 2% losses from the previous session.

US CPI jumped to 8.5% YoY in March ahead of the 8.3% forecast and up from 7.9% in February. Core inflation was slightly softer than forecast at 6.5% YoY, up from 6.4% in February but short of the 6.6% forecast.

The market has clasped onto the softer core inflation figure and is reacting to that. The USD has fallen away from session highs whilst stocks have surged higher. This feels like quite an overreaction by the market given that inflation is still so high. Still, the market was bracing itself for hot inflation, so a softer core reading is just taking the edge off the dollar, sparking some profit-taking.

The data is unlikely to have changed the Fed's stance in anyway. A large rate hike of 0.5% is expected for May and the central bank is also expected to start trimming its balance sheet ramping up to $95 billion a month.

Fuel prices were the main driver of inflation once again, after the US ban imports of Russian oil after the Russian invasion of Ukraine.

Looking ahead there is no more high impacting US data. Attention will now turn to Fed speakers, following the release. Fed Brainard is due to speak shortly.

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Where next for the S&P500?

The S&P 500 rebounded lower off 4630, falling below the 100 sma and the 50 sma to a low of 4387, where buyers have re-entered to push the price higher, back over 4400. The long lower wick suggests that the price failed to find acceptance at the lower level, although the bearish crossover on the MACD points to further losses. Sellers will need to take out today’s low of 4387 to push lower towards 4330 a level that has offered support and resistance on several occasions across the past few months. Buyers would be looking for a move over the 100 sma at 4500 for further gains towards 4630.

FX markets USD falls, EUR edges higher

USD has turned lower following the inflation release, showing signs of relief that the print wasn’t even higher and as investors react to the weaker core inflation print.

EUR/USD edges higher as ZEW German economic sentiment painted a mixed picture. Economic confidence deteriorated in April to -41 down from -39.9 but much better than the -48 forecast. Inflation in Germany, CPI confirmed 7.3% YoY in March up from 5.1%, PPI jumped to 22.6%, up from 16.6% in February.

GBP/USD rises encouraging UK jobs data. The unemployment rate fell to 3.8% below its pre-pandemic level. Wages also jumped to 5.4% in the 3 months to February, although this was still below the 6.2% inflation level. Even so, it will still pile pressure on the BoE to hike interest rates.

GBP/USD  +0.1% at 1.3011

EUR/USD  +0.04% at 1.0850

Oil rebounds as OPEC warn over Russian supply

Oil prices are on the rise as Shanghai relaxed some of its COVID restrictions, easing concerns over the Chinese demand outlook and as OPEC warned over Russian supply losses.

Shanghai has lifted lockdown restrictions in some areas of the city. The move has eased demand fears which had pulled the price lower in recent sessions.

Separately OPEC warned that it would not be possible to replace the Russian supply of 7 million barrels a day in the event of sanctions or involuntary. Whilst the UK and the US  have banned Russian oil imports the EU is still divided over such a move, given how dependent it is on Russian oil.

WTI crude trades +4.4% at $98.18

Brent trades +4.3% at $102.84

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Looking ahead

21:30 API oil inventories

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