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CPI Comes In at 0% Stirring Up the Markets
11.08.2022

The new inflation figures are finally out! Within the first two days of the week, investors experienced very little volatility as there was little direction in the market. It made it slightly difficult for traders looking to trade trends. However, as mentioned earlier in the week, most investors had been holding back trades until the market obtained further clarity on inflation. The inflation figures were released yesterday afternoon via the Consumer Price (CPI) Index.

The CPI figure has gotten extremely high recently, increasing from 0.3% to 1.0% and then a whopping 1.3% on a monthly basis. It was expected that the inflation rate would be much lower this month, as it is unusual for the US economy to continue seeing such high rates month over month. In fact, the inflation rate was predicted to have increased by 0.2% - 0.3%, but the figure actually came in at 0.0%. This CPI figure is the lowest we have seen in almost 2 years. Also, all market participants have noticed that petrol prices, which weigh heavily on inflation, have come down significantly over the past month.

Almost all assets saw a jump in volatility. Most major currency pairs saw the US Dollar decline, averaging around 1.30% within a period of only 3 hours. The stock market also saw strong price movement, but, unlike the USD, it was positive. The NASDAQ increased by 2.85% and the SNP500 by 2.13%. The NASDAQ is now at its highest price since the 1st May of this year.

Oil prices saw mixed movement but still remain within the latest price range. At first, the bears held the upper hand with the price dropping to $87.14 per barrel. Later on though, the price was rejected and increased quickly. Overall, the price ended the day higher, and is currently hovering at $91.19 but continues to show signs of bearish volatility.

USD/JPY

As with most pairs, the USD/JPY saw a strong breakout with the news from the Bureau of Labor Statistics. However, the USD/JPY had virtually seen no volatility throughout Monday, Tuesday, and Wednesday morning. Other currency pairs experienced volatility, but not much direction. Clearly, the market participants were waiting for further clarification on inflation before placing their positions.

The US Dollar declined by 2.19% within the first few hours of the CPI release. The significant decline had increased the level of demand. As sellers started closing their profiting positions, the price moved into a retracement. Currently, the retracement measures 31% of the previous price movement and has managed to form 2 higher waves, with the price lows also remaining higher. Nonetheless, the price remains very low and potentially exposed to more sellers.

USDJPY - 11.08.2022.png USD/JPY 1-hour price chart on August 11th.

The Consumer Price Index has triggered a large amount of sell positions in the market. Participants believe that lower level of inflation may potentially result in the Federal Reserve taking a more dovish stance, specifically after the previous Fed meeting had confirmed that the rate hikes had not yet had their effect on the market. Traders are wondering if the Fed may take a “wait and see” stance.

Therefore, the Federal Reserve’s response to the level of inflation, which has now dropped from 9.1% to 8.5%, will be of high importance. Despite growing by 0.0% in July, the inflation rate is still very high and more than the Fed’s 2% target. On the other hand, it should be noted that the Fed may not take a dovish stance as the market seems to expect. Most analysts have advised that inflation is still too high, so tightening the monetary policy will continue, and the regulator may still increase the interest rate by 0.75% during their next meeting.

The President of the Minneapolis Federal Reserve had already come out after the inflation figures to confirm his point. Mr Kashkari advised that, “It is unrealistic to believe that we will cut interest rates any time soon when it looks certain that inflation will remain higher than our target well into 2023.” The market will, of course, continue monitoring the Fed members’ personal opinions.

US Stocks

NAS100 - 11.08.2022.png NASDAQ 8-hour price chart on August 11th.

NASDAQ saw the highest price movement of all the major US indices, increasing by 2.85% within trading hours, and a further 0.70% during this morning’s futures market. The increase was triggered by the lower inflation levels and news that petrol prices had declined within the previous month, which will hopefully increase consumer confidence levels. Whether the market will be able to continue its upward trend will depend on the Fed’s response as well as general economic performance.

One of the most successful stocks was Disney which released its quarterly earning report for the previous quarter. Disney stocks increased by more than 6% and has now reached its highest price since April. The report confirmed that Disney added an additional 4 million subscribers, exceeding market expectations. The company also beat its profits and Earnings per Share (EPS) expectations.

**Earnings Per Share: **underlined text$1.09 vs $0.96 expected Revenue:underlined text $21.5 billion vs. $20.96 billion expected **Total subscriptions: **underlined text152.1 million vs 147.76 million expected

Key Takeaways:

  • The US inflation rate declines from 9.1% to 8.5%, increasing 0.0% m/m.
  • The US Dollar sees strong negative price movement as traders expect the Fed to adjust their hawkish stance.
  • The US stock market reacts positively with NASDAQ and the SNP500 soaring.
  • Oil is currently hovering at $91.19 but continues to show signs of bearish volatility.
  • Disney stocks spike after positive earnings and subscriptions data.
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