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Marketmind: Still too hot

Economy May 12, 2022 07:51AM ET
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© Reuters. FILE PHOTO: A person pushes a shopping cart in a supermarket in Manhattan, New York City, U.S., March 28, 2022. REUTERS/Andrew Kelly

A look at the day ahead from Danilo Masoni.

The return of U.S. inflation to more bearable levels is not going to happen overnight so those who were hoping for a clear signal that price pressures had peaked got disappointed.

April's hot consumer price data did leave bets of aggressive Fed tightening broadly intact and with them the spectre that a hard landing for the world's top economy may become unavoidable.

The fall of the headline figure to below the 40-year peak did provide some comfort, helping world stocks, already flirting with bear market territory, regain some footing after an initial kneejerk plunge. But that bounce was short-lived.

The Nasdaq fell over 3%, logging its worst five-day drop since March 2020. Asian shares absorbed the pain with a 2.5% drop to almost 2-year lows and European equity index futures are pointing to an ugly day ahead.

The risk of a recession also reversed the spike in Treasury yields which now look set to fall further this morning while the only winner appears to be the dollar which has rocketed to a new 20-year peak. A Wall Street fear gauge is above 30 for a fifth consecutive day.

Meantime, finance ministers and central bank governors from Japan, China and South Korea warned of risks to Asia's economic recovery from the COVID-19 pandemic and from early interest rate rises "in some advanced nations".

Oil too is down. Cryptocurrency markets are in meltdown mode with so-called stablecoin TerraUSD collapsing and Bitcoin falling below $27,000 to give up its 2021 gains.

Positive soundings from the earnings season in Europe may do little to save the day. Analysts now see profit growth north of 40%, up from around 20% forecast two months ago, per Refinitiv I/B/E/S data.

U.S. CPI https://fingfx.thomsonreuters.com/gfx/mkt/zgpomlozmpd/Morning%20bid.PNG

Marketmind: Still too hot
 

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