EQUITIES 4 minutes to read

NY Open: 'Oh, what a relief it is'

Summary:  Core US CPI data came in a tick below the forecasted 2.3% today, with the print helping to alleviate concerns that rapidly rising inflation rates would force the Fed to speed up its policy normalisation schedule.


“Plop, plop, fizz, fizz, oh, what a relief it is” – with this jingle, Alka-Seltzer promised relief from heartburn. Tame inflation data did the same thing for Wall Street traders today, at least initially. The day is still young.

Core CPI data came in at 2.2% year-on-year, a tick below the 2.3% that was widely expected. This morning’s data went a long way towards alleviating concerns that rapidly rising inflation rates would force the Federal Reserve to speed up the pace of interest rate hikes. A dip in US 10-year Treasury yields from 3.195% pre-CPI to 3.162% post-CPI helped. Wall Street reversed opening losses, and the three major indices are in positive territory as of 14:00 GMT.

The equity market meltdown was overdue. Prices had rallied relentlessly since July without any meaningful pullbacks. Traders turned a blind eye to escalating US/China trade tensions, hawkish-sounding comments from Fed officials, and soaring oil prices. They spooked themselves during a period devoid of top-tier actionable US economic reports, sparking a much-needed correction. The Dow Jones Industrial Average uptrend from April is still intact while prices are above 25,000.

The inflation data appeared to be a letdown for FX markets. There was the usual noise after the release, but markets quickly settled down. AUDUSD and NZDUSD outperformed, rising 0.39% since the New York open. The rest of the G-10 majors are flat to slightly higher except for the Japanese yen, which is lower.

EURUSD continues to rally after bouncing off of major support in the 1.1440 area on Tuesday. The uptrend is intact while prices are above 1.1550, with a break above 1.1620 targeting further gains to 1.1720.

The rally may be more of a short squeeze rather than the onset of a new trend. For starters, US rates are still going higher while the European Central Bank is on hold until the summer of 2020. Also, Italy continues to defy the EU with its budget deficit plans. If Rome gets away with it, what other capitals might try the same thing?
Enlarge
EURUSD (source: Saxo Bank)
Enlarge
EURGBP (source: Saxo Bank)

You can access both of our platforms from a single Saxo account.

Disclaimer

Saxo Capital Markets (Australia) Pty Ltd prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Combined Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)