Market overview

U.S. inflation is at the highest since 1981

The U.K. CPI is at 30 years peak

Russian-Ukrainian peace talks reached a dead end

FOREX

US Dollar Index (USDX)

The U.S. dollar edged higher in early trades after the release of the inflation data. Meanwhile, the Dollar Index traded 0.2% higher at 100.48. The release of the U.S. consumer price index lived up to expectations. CPI rose 8.5% in March compared to the previous year to hit the highest rate since 1981.

However, the core CPI landed at 6.5%. This raised the possibility that the Federal Reserve (Fed) might be less aggressive than expected. Moreover, the benchmark 10-year U.S. Treasury yield traded at 2.765% early Wednesday, compared with an over-three-year peak of 2.836% before the inflation data.

Euro (EURUSD)

The European currency traded 0.1% lower at 1.0818, just above a new five-week low. Additionally, the Russian President Vladimir Putin stating that peace talks with Ukraine were “at a dead-end”. The war in Ukraine has heavily pressuring the sentiment in Europe. The German ZEW economic research institute stated that its economic sentiment index fell to -41.0 points from -39.3 in March.

The European Central Bank meets on Thursday and has difficulty balancing soaring prices with these pressures on growth. Although a slight rate hike is expected at this meeting, money markets are discounting about 70 basis points of interest rate tightening by December.

Sterling Pound (GBPUSD)

The Sterling pound fell 0.1% to 1.2986 against the greenback after data showed U.K. inflation climbing to its highest in over 30 years in March. Furthermore, the annual rate of consumer inflation climbed to 7.0%, up 1.1% in month-on-month terms.

The Bank of England (BOE) has lifted interest rates at its last three meetings, to above the levels seen pre-pandemic, but so far this has done little to impact the growing cost-of-living crisis in the country.   

Japanese Yen (USDJPY)

The Japanese Yen weakened against the greenback and the USDJPY pair rose 0.6% to 126.14. The samurai currency seems to be ignored as the Bank of Japan has repeatedly intervened to keep benchmark bond yields around zero, in direct contrast to most of the yields of rival countries’ debt.

Indices

U.S. Indices

U.S. inflation data showed consumer prices rise 8.5% in March from the previous year — the highest level since 1981 and fueling concerns of tighter monetary policy from the Federal Reserve while Core CPI rose 0.3%, slightly below expectations. The United States 10-Year bond yield hit new three-year highs at 2.82% before pulling back to 2.727%.

On Tuesday, The Dow Jones Industrial Average fell 0.26% to 34,220.36, the S&P 500 lost 0.34% to 4,397.45 and the Nasdaq Composite 0.3% to 13,371.57. However, during today’s trades, Dow Jones Futures added 0.13%, S&P 500 Futures were up 0.07% and Nasdaq 100 Futures gained 0.05%.

European Indices

European stock markets are expected to open in a mixed fashion Wednesday, with investors weighing the risks associated with soaring inflation, central bank policies, and the ongoing Ukraine conflict. The DAX futures traded 0.6% higher, while CAC 40 futures dropped 1.3% and the FTSE 100 futures fell 0.1%.

The U.K. CPI rose 7% on the year to a 30-year high in March. These inflationary pressures are potentially keeping the Bank of England (BOE) on its tightening path. BOE has already raised interest rates to pre-pandemic levels, hiking at three successive meetings for the first time since 1997.

The European Central Bank (ECB) is set to hold its latest policy-setting meeting on Thursday. The pressure on the policymakers to tighten Eurozone monetary policy, Data released Tuesday showed German consumer price inflation rising 7.3% over the year.

Asian Indices

Asia-Pacific stocks were mixed during the morning session as investors continued weighing the risks from high inflation. China’s Shanghai Composite was down 0.31% and the Shenzhen Component slid 1.33%, while Hong Kong’s Hang Seng Index was down 0.31%. Japan’s Nikkei 225 rose 1.64% and the Australian ASX 200 edged up 0.12%, with the Westpac consumer sentiment index contracting 0.9% in April.

Metals

Gold prices edged higher as concerns of an escalation in the Russia-Ukraine conflict increased safe-haven bids for the precious metal, although a firmer U.S. dollar capped bullion’s gains. Russian President Vladimir Putin described the on-and-off peace negotiations as “a dead-end situation” on Tuesday, while U.S. President Joe Biden said for the first time that Moscow’s invasion of Ukraine amounts to genocide.

Spot gold was up 0.2% at $1,969.61 per ounce after hitting a near one-month peak of $1,978.21 on Tuesday, while the U.S. gold futures were down 0.1% at $1,973.70.

Spot silver was up 0.5% at $25.48 per ounce, platinum rose 0.7% to $971.96, and palladium gained 2.7% to $2,387.77.

Energy

Oil prices edged up after Moscow said peace talks with Ukraine had hit a dead end, fueling supply worries, while weak economic data from China and Japan kept a lid on gains.

Brent crude rose 0.2% to $104.86 a barrel, while U.S. West Texas Intermediate (WTI) crude futures rose 0.1% to $100.68 a barrel. The benchmarks had surged more than 6% on Tuesday.

Crude futures are also drawing support from falling Russian oil and gas condensate production to below 10 million barrels per day (bpd) on Monday, its lowest since July 2020. Western sanctions against Russia after it invaded Ukraine and logistical constraints have hampered trade, people familiar with the data said on Tuesday

However, weak economic data from China and Japan capped oil price gains. China’s crude oil imports slipped 14% from a year earlier, extending a two-month slide, as strict COVID curbs hit demand in the world’s top crude importer.