Daily Market Outlook, April 12, 2022

Overnight Headlines

  • Fed’s Evans: Half-Point Hike Worth Debate To Get To Neutral
  • US Economy ‘Facing Rocky Waters,’ Biden Aide Deese Warns
  • Gasoline Prices Set To Boost US Consumer Inflation In March
  • Pentagon Monitor Reports Of Russian Chemical Agent Attack
  • US Withdraws Consulate Staff Over Shanghai Covid Outbreak
  • China Tech Stocks Gain As New Game Licenses Stir Optimism
  • Japan Wholesale Inflation At Near Record On War, Weak Yen
  • Japan Finance Minister Warning Offers Yen Only Brief Respite
  • UK Energy Price Ceiling Could Rise Further, Ministers Warned
  • UK Retailers Warn Inflation Is Curbing Demand As Sales Slow
  • Macron Turns On Charm Offensive As Campaign Shifts Focus
  • Amazon Start Jumbo 7-Part Bond Sale Including 40-Year Debt

The Day Ahead

  • Asian equity markets are mostly lower this morning, although Chinese indices are up. The Pentagon said that the war in Ukraine will likely enter a “more protracted and a very bloody phase”. Germany promised more support to Ukraine. US Federal Reserve policymaker Evans said that a 50 basis points increase in interest rates in May needed to be considered and “perhaps is highly likely even”. Chinese Premier Li warned about downside risks for the economy.
  • The just released UK labour market report showed another fall in the unemployment rate to 3.8% in the 3 months to February equalling its pre-pandemic low, while employment grew by 10k. Annual wage graph accelerated to 5.4%, from 4.8% previously still leaving it well below the current inflation rate. Meanwhile, the BRC’s retail sales measure fell by 0.4% year-on-year in March.
  • The German ZEW survey will provide one of the first indications of economic activity trends for this month in the Eurozone. In March both the current conditions and expectations readings fell very sharply probably primarily due to negative Impacts from the Ukrainian crisis and further declines are expected for April.
  • US annual CPI inflation is forecast to have risen to a new 40-year high of 8.4%, up from 7.9% in February. The ‘core’ rate (excluding food and energy prices) is predicted to increase to 6.7% from 6.4%. Depending on the evolution of energy prices, US inflation may be near a peak, but there is considerable uncertainty over how quickly it will fall back in coming quarters.
  • UK inflation data for March, to be released early Wednesday is expected to show a rise in annual headline CPI inflation to 6.6% from 6.2% in February. However, core CPI inflation is likely to be unchanged from February at 5.2%. Headline inflation seems set to move above 8% in April as the sharp rise in Ofgem’s energy price cap takes effect. Depending then on how wholesale prices evolve in the coming months, there could be another big increase in October, so it is possible that inflation will not peak until later in the year. The BoE, however, expects inflation to fall back over the medium term, with lingering high energy price levels weighing on domestic demand.
  • Monetary policy updates due early Wednesday are forecast to show contrasting trends. In New Zealand policy interest rates are expected to be raised for the third time since last October, probably by 25 basis points although some analysts a predicting a 50bp hike. However, in China, the central bank seems set to react to negative growth concerns by cutting its one-year medium lending facility rate.

Technical & Trade Views

EURUSD Bias: Bearish below 1.12 Bullish above

  • EUR/USD drops to near 1.0870 ahead of US inflation and ECB Bank Lending Survey
  • DTCC report shows there has been a good purchase of 1.0800 EUR put strikes, most of them due early May
  • Strikes at 1.0900 mature today and tomorrow, total €2.2bn
  • UniCredit Research expects the ZEW growth expectations component to rebound to about minus 10 in April from minus 39.3 in March
  • While below 1.0950 focus remains on the downside
  • Bears target a test of 1.0711
  • A short squeeze through 1.1040 needed to change the near term bearish lean

GBPUSD Bias: Bearish below 1.3350 Bullish above.

  • US Pentagon Press Sec Kirby and UK Foreign Sec Truss have both commented and Russian forces may have used chemical agents
  • GBP trades heavy again with an offered tone post data
  • Bears target a test of 1.2920’s as the next downside objective
  • Focus remains on the downside while 1.31 is defended from above

USDJPY Bias: Bullish above 120 Bearish below

  • Yield of 10-year UST rose above 2.82%, USDJPY extended gains to 125.56
  • Japan Fin Min Shunichi Suzuki says stability in FX rates important
  • Japan March Bank Lending +0.5%
  • Upside breach of 1.26 opens the way for test of 126.18
  • Focus remains firmly on the upside while 1.24 is defended from below

AUDUSD Bias: Bullish above .7300 Bearish below

  • AUD/USD eyes three-week’s low at 0.7400 amid aggressive Fed’s tightening bets
  • Corporate bids highlighted sub .7400
  • Australian federal election will be held on May 21
  • Australian financial markets are pricing in aggressive interest-rate increases starting in June, but a former senior economist at the Reserve Bank of Australia says government bond traders are on track to be disappointed
  • According to Peter Tulip, now the chief economist at the Centre for Independent Studies, the preconditions for an increase in RBA interest rates, the first since 2010, are unlikely to be met in the near future.
  • A loss of .7390 would set the course for a deeper correction to test pivotal .7290
  • While .7290 acts a support focus remains on the upside. A daily close below would be a bearish development.