US inflation rises as does the US government deficit, USD rises consequently

Jan 14 • Market Commentaries • 1397 Views • Comments Off on US inflation rises as does the US government deficit, USD rises consequently

Two high impact economic data affected the value of USD during the trading sessions of Wednesday 13. Inflation (CPI) came in at 1.4% annually due to a 0.4% rise month on month, an 8.4% gasoline cost rise for consumers was the main driver for the increase.

The Federal budget balance beat the forecasts made by Bloomberg and Reuters, coming in at -$144B versus predictions of -$200B. Although the reading is a significant rise compared to the -$13.3B gap recorded at the same time last year, market participants concluded that the US govt might need less stimulus than previously predicted.

Oil, gold and silver trade down on the day

Oil fell during the New York session after the latest inventories indicated that oil and gasoline consumption has faded. The commodity gave up its position above R1 and the $53 per barrel level/handle to trade down -0.60% at $52.89.

Gold and silver continued its recent sell-off. After reaching an early January high of $1,960 per ounce XAU/USD traded at $1,845. Close to S1 and down -0.63% on the day and -2.63% YTD. Silver traded -1.57% down on the day.

After the turmoil unleashed in Washington last week by Trump supporters inciting a riot, market participants appear to be relieved that business is normalising on Capitol Hill. Despite that normality including voting to impeach Trump an historic second time, an ignominious end to his tenure.

Investors begin to prepare for the Biden administration

Biden is now seven days from the ceremonial inauguration, and predictions suggest further fiscal stimulus will become available quickly, an exercise that could immediately stimulate both the US equity markets and the grass roots real economy.

The SPX 500 traded 0.37% up, DJIA was -0.10% down, and the NASDAQ traded 0.82% climbing back over the critical handle of 13,000 to reach an intraday high of 13,016. Still short of the record high of approximately 13,140 printed earlier in January.

The dollar index DXY was up 0.28% on the day and trading back above the 90.00 psyche handle. The USD made gains versus all its main peers, including both antipodean currencies NZD and AUD. At 9:00 pm UK time USD/CHF traded at 0.15% up, and USD/JPY traded up 0.10% on the day and up 0.60% YTD.

GBP/USD retreated from its recent two-year high, trading in a tight range close to the daily pivot-point and down -0.22% at 1.3635. EUR/USD traded -0.43% down, close to S1 at 1.2155, giving up the gains recorded on Tuesday, and -0.49% down year-to-date.

Economic calendar events to monitor on Thursday, January 13

Once markets open in London on Thursday morning, we’ll have the latest November machinery orders from Japan. Together with the balance of trade figure, this will indicate how Japan’s economy is coping with the impact of the COVID-19 outbreak.

The expectation is that orders will illustrate a fall from 2.8% to -16.0% annually, with the month-on-month figure coming in at -7.0%. The impact on yen could continue into the London session and throughout the trading day.

China’s export and import data gets published during the Asian session, and once the London session opens, we’ll know how the data has affected Asian markets overnight.

The virus has had little impact on China’s economy, the globe’s second-largest economy showed growth of close to 6% during 2020. Perhaps their management of the crisis is a lesson to the USA and UK currently grappling with renewed outbreaks, mass unemployment and economies set for double-dip recessions.

The euro will be under the microscope during the London-European FX trading session when Germany reveals the latest GDP figure. Reuters forecast a figure of -5.4% for 2020, the first time Germany’s economy has recorded an annual recession since the Great Recession. The ECB will publish the latest policy meetings to define their short to medium-term monetary policy.

From the US we have a raft of economic data on Thursday. The latest weekly unemployment figures get published, worth keeping an eye on for any evidence that seasonal layoffs are mounting up. The latest import and export prices, both monthly and annually get published during the New York session, these will deliver a leading indicator of the country’s economic trajectory. As the NY session begins to wind down, Federal Reserve officials including the chair Jerome Powell will deliver speeches. These could provide forward guidance regarding how the Fed will work with the incoming Biden administration.

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