EM Market Report

Markets continue to chase risk ahead of US inflation

Thanim Islam
Thanim Islam 11 January 2023

- Lack of Powell pushback supports risk appetite

- ECB and Fed continue hawkish rhetoric

- Inflation in Australia continues to climb

Yesterday

  • Markets continued their risk-on moves with equities higher and the USD lower, after Fed Chair Jerome Powell didn’t push back on market pricing on interest rates.
  • ECB member Schnabel stated that EU interest rates must rise significantly at a steady pace to ease inflation.
  • Fed member Bowman added to Daly and Bostic’s prior hawkish message that more rates hikes are needed in the US, and that they should be held for some time. She did caveat her comments though, suggesting that the size of hikes and the ultimate peak in rates will be data dependent. Her comments had little impact on USD.
  • Data from Australia boosted AUD slightly with GBPAUD near November lows. Inflation rose more than expected to 7.3% in November up from 6.9% in October, as did core inflation which rose to 5.6%. Retails Sales in November rose to the highest since January, up to 1.4% versus an uptick of 0.6%.

Today

Market rates

* Daily move - against G10 rates at 17:00pm, 10.01.23

** Indicative rates - interbank rates at 17:00pm, 10.01.23

Table (5)

Data points

Table (4)

Speeches

  • EUR – ECB’s De Cos, Holzmann, Rehn, and Villeroy

Our thoughts

Following the lack of pushback from Fed Chair Powell, markets continue to seek risk on the China re-opening story, and following the weaker wage figures from the US which suggest that perhaps there are some cracks in the US job market. The gauge of USD (The US dollar index) is now at a 7-month low. All eyes will be on tomorrow's inflation print for the US to see how markets perform for the rest of the month. Until then, it seems we’ll see continued bias for risk, and thus weaker USD.

Chart of the day

The dollar's recent losses have been in focus, and on a technical basis we have seen price action trade below both the 50-day and 200-day moving average.

Now however, we have the threat of the 50-day average crossing lower than the 200-day moving average, the so-called “death-cross”, as well as dollar price action coming to the supportive two-year trend line. Thursday's CPI data, whilst not determining the overall trend or direction in inflation, could well be pivotal on the dollar's two-year uptrend breaking….. or continuing.

11012023 cotdSource: Bloomberg Finance L.P.

Have a great day.