Daily Fundamental Analysis 13-05-2022

Daily Fundamental Analysis 13-05-2022

  • Market News
  • Daily Fundamental reports
  • 2022, 13 May

Overview

• India inflation rose 7.79% on annual basis in month of April owing to higher edible oil & fuel prices

• Food inflation, which is driving the rise in retail inflation, rose by 8.38%, highest so far in this fiscal 

▪ 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 US month-on-month PPI came in as expected at 0.5% (previous 1.4%), driving the dollar to a 20-year high.

What does it mean for the Asia Session?

The Japanese yen is still expected to outshine safe-haven counterparts, the US dollar and the Swiss franc. Prospects of a recovery for the antipodeans remain bleak amid the Covid-19 situation in China, the largest trading partner for Australia and New Zealand.

Precious Metals

Gold prices were held near a three-month low as the strongest dollar in two decades continued to sap demand for greenback priced bullion, setting up what could be the metal's fourth consecutive weekly fall. Silver prices also fell mercy at the hands of dollar as amidst the panic selling witnessed across all major asset classes, silver too witnessed a sharp fall below the important $21 mark panic. The dollar steadied near a fresh 20-year high scaled as concerns persisted that U.S. central bank's actions to drive down high inflation would crimp global economic growth, boosting the currency's safe-haven appeal. We are witnessing series of updates regarding the geo-political tensions between Russia and Ukraine although, A cautious approach is advised as further rise in monetary policy tightening expectations could continue to keep pressure on the safe haven assets. On data front, U.S. PPI was reported in line with expectations which were lower on other hand; weekly jobless claims were reported higher, supporting metals on lower side. Focus today will be on the Michigan inflation expectations numbers.  

Outlook

Gold prices would continue to trade under pressure as the rival safe haven to gold, the dollar continues to trade at all time highs. However, the downside might remain capped as the treasury yields are witnessing a pullback from the recent highs. 

Base Metals

Base metals opened steady after a volatile day yesterday. Most of the metals felt heat amidst rising dollar; London copper prices lingered near a more than seven-month low, as fears over a global economic slowdown cast a shadow on demand outlook, keeping the metal on track for its sixth consecutive weekly decline. Major central banks, including the U.S. Federal Reserve, have been raising interest rates to tackle soaring inflation, stoking economic slowdown concerns. Data showing higher-than-expected rise in U.S. consumer prices in April has fanned fears of aggressive policy tightening by the Fed. Also on other hand, Prolonged COVID-19 lockdowns in China have also dented market sentiment. Beijing denied it was heading for lockdown as panic buying gripped the capital, while Shanghai combed city for lingering COVID-19 cases in hope of clearing way to escape from weeks of painful restrictions. 

Outlook

We expect copper to trade lower today.

Energy

Crude oil advanced for a third day following another rollercoaster ride as investors weigh the prospect of a EU ban on Russian crude imports and uncertainty over China’s virus resurgence ended the session higher. The market continues to fret over the EU.s proposal to ban imports of Russian crude. Brent came under pressure during the session after some members of the EU said it may be time to consider delaying the ban so they can proceed with the rest of the sanctions package. Nevertheless, the risk of significant disruptions continues to hang over the market. After holding up relatively well, there are signs that Russian oil flows are now falling. Just one cargo of Sokol crude has been shipped since 27 April, while five more that should’ve been loaded have been missed, ship tracking data shows. The International Energy Agency warned that output losses of 1mb/d may triple in the second half of the year. The EU ban on Russian oil could displace around 2.5mb/d of oil. Russia’s ability to find new customers is hindered by capacity constraints for land-based oil trade, as well as increasing constraints on shipping. 

Outlook

Increased geopolitical tensions between Russia and Ukraine when the latter blocked the flow of Russian gas to Europe by shutting down a major transit route, which will result in a supply shortage. 

FOREX::

The Dollar Index (DXY)

A lower-than-expected US Prelim UoM Consumer Sentiment (expected 64.1, previous 65.2) may serve as a prelude to a decline in Retail Sales. 70% of US economic activity is dependent on consumer spending.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 plunged by more than 1 percent. 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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