Daily Fundamental Analysis 12-05-2022

Daily Fundamental Analysis 12-05-2022

  • Market News
  • Daily Fundamental reports
  • 2022, 12 May

Overview::

• Fall in U.S. Dollar and Yields was witnessed after the release of U.S. inflation data

• U.S. CPI climbed to 8.3% on annual basis in April, easing from 8.5%; outstripping expectations of 8.1% 

▪ ECB firms up expectations for July interest rate hike

▪ Russian rouble surges past 67 vs dollar, stocks mixed

▪ U.S. household strength may prolong Fed's inflation fight

What happened in the US session?

The month-on-month US CPI figures came in higher than expected, notably with Core CPI doubling the prior reading of 0.3%. On an annual basis, consumer prices rose 8.3% last month from a year earlier, down slightly from 8.5%.

What does it mean for the Asia Session?

Amid the weakness in the equity markets, the Japanese yen may turn out to be the preferred safe-haven currency as the recent strength in the USD and war-influenced CHF goes out of favor.

Commodities::

Precious Metals

Gold continue to hold ground trading steady around $1850, resuming its climb after a knee-jerk reaction witnessed earlier this week. A fall in U.S. Dollar and Yields was also witnessed after the release of U.S. inflation data. After an initial advance, both U.S. Dollar and Yields witnessed a correction currently at around 103.90 and 2.8% respectively. The consumer price index (CPI) rose 0.3% last month, smallest gain since August, versus the 1.2% MoM surge in the CPI in March, the largest advance since September 2005. On yearly basis, Inflation was reported better than expectation at 8.3% although showed signs of some steadiness near the 8.5% levels. Central Bank officials have also been in the highlights this week, Fed official Williams said "50bpshikes are base-case, not sure if need to raise rates above neutral," subtlety dropping hints that it will take time to get inflation down. Whereas, Fed official Bostic reaffirmed "strong and steady" hiking at 50bps per meeting. Focus today will be on IIP data from major economies and U.S. weekly jobless claims data. 

Outlook

Gold prices saw an uptick in yesterday’s session as the dollar witnessed a pullback from the highs. However any bounceback in the dollar or the treasury yields will further pull the price of the yellow metal lower. 

Base Metals

London copper prices slipped on Thursday as the dollar firmed, while U.S. inflation data stoked concerns about aggressive policy tightening by the Federal Reserve, which could impact global economic growth. All eyes were on the U.S. CPI data in the yesterday’s session, which climbed 8.3% on an annual basis in April, easing from the 8.5% pace of the prior month but outstripping the 8.1% estimate of economists. On other hand, China's producer prices rose at the slowest pace in a year in April, despite a surge in global commodity prices, leaving room for more stimulus to shore up the flagging economy, which faces pressure from heavy COVID-19 curbs. China's April refined zinc output at 52 major smelters rose from the previous month, statebacked research house Antaike said, as COVID-related transportation disruptions alleviated while there were new capacities started production.

Outlook:

The base metals pack is expected to trade under pressure given the weaker demand from the major metals consuming nation, China, as the country is witnessing prolonged covid-19 induced lockdowns which has hampered the industrial production. 

Energy

Crude oil rallied by 6% rising for the first time in four sessions and cutting by two-thirds losses on the week as the market’s focus returned to bullish fundamentals as benign inflation data suggested the Federal Reserve might not go overboard in the near term with rate hikes that could tip the U.S. economy into recession. US gasoline and diesel prices rose to a record as the nation faces low inventories heading into the summer driving season. Stockpiles are shrinking as US refiners send more production overseas amid the disruption to Russian supplies. Distillate inventories fell 913kbbl to 104.03mbbl last week, the lowest level since May 2005. Gasoline inventories were also down last week by 3607kbbl. Auto club AAA said that the average gasoline price is now USD4.404/gallon. The market is also watching closely the negotiations between EU member states on the proposal to ban Russian oil. Hungary said it will only agree to a ban if shipments via pipelines are excluded. The market was also comforted by a slowdown in the outbreak of COVID in Shanghai.

Outlook

Esclation in the geo-political tension between Russia and Ukraine after the later stopped the flow of Russian gas to Europe as it halted a major transit route which inturn will create a shortage of gas supplies. We expect crude to trade lower.

Forex::

The Dollar Index (DXY)

Among the latest Fed-speak in favour of combatting inflation, member Bullard views that the fed funds rate should be 3.5% by the end of 2022. Central Bank Confirmed that the committee expects further 50bps hikes to be appropriate; 75bps hikes off the table. Balance sheet reduction push up to $60b (treasuries) and $35b (MBS) over a three-month timeframe.

Outlook:

Weak Bullish

Euro::

In yesterday’s trading session, EURUSD traded lower. Euro is likely to remain in the bearish territory for some more time. The main reason is the ongoing Ukraine and Russian war which has led to sanctions on the former thereby affecting the crude world on which Europe was heavily dependent. The European Union Commission has delayed acting on a proposal to embargo Russian oil. Hungary has dug in its heels in opposition, and other European nations voiced concerns that their economies could suffer distress if Russian oil imports were curtailed further. Apart from this, the ECB President has hinted towards rate hike as soon as July as inflation continues to rise. ECB’s Governor Madis Muller noted that the stimulus program known as APP should end in July, while a hike must not be far behind.

Outlook:

EURUSD is likely to trade lower today.

Sterling Pound:

In yesterday’s trading session, GBPUSD traded with a negative bias after the DXY surged post the release of US Consumer Price Index that came at 8.3%, higher than the 8.1% anticipated. The monthly figure was up 0.3% against the 0.2% expected. Finally, the annual core CPI hit 6.2%, slightly below the previous 6.5%, but above the 6% expected.

Outlook:

GBPUSD is likely to trade lower today. 

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