Stocks Steady as PPI Soars, Banks in Focus

US stocks are edging higher after PPI jumps to 11.2% YoY and JP Morgan sees profits fall

US futures

  • Dow futures -0.1% at 34185
  • S&P futures +0.01% at 4396
  • Nasdaq futures +0.1% at 13950

In Europe

  • FTSE -0.2% at 7563
  • Dax -1% at 13978
  • Euro Stoxx -1% at 3800

Stocks rise, PPI inflation increases more than expected

US stocks are heading for a quiet start after a mildly weaker close on Tuesday, as investors continue digesting the latest US consumer inflation report and the beginning of earnings season.

Inflation data yesterday showed that consumer prices were at a 40-year high. Today the PPI inflation report, which measures inflation at wholesale level, showed a rise of 11.2%, up from 10% in February and ahead of the 10.5% forecast. Hit PPI inflation suggests that consumer prices are unlikely to cool soon.

Expectations of a more hawkish Fed have boosted the USD and dragged on stocks sharply over the past week. According to the CME Fed Funds, the market is pricing in an 87% probability of a 0.5% in the May meeting. This was up from 81% yesterday before the CPI release.

Separately Russia Ukraine headlines are in focus as peace talks fall apart and oil prices are back on the rise.

In corporate news:

US banks kicked off the US earnings season today, with JPMorgan on to a disappointing start. The bank reported EPS of $2.63, down from $4.50 the year before and missing the $2.73 forecast, as deal-making slowed in the wake of the Russian war and amid uncertainty over the outlook.

Where next for the Dow Jones?

The Dow Jones faced rejection at 35380, falling below the 200 SMA, and is currently testing the 50 SMA and the falling trendline support. The long upper wick on the candle, in addition to the bearish crossover on the MACD, suggests that there could be more downside to come. Sellers will look to take out 34100, yesterday’s low, in order to push the price lower to 33500, the January 25 low, and 34200, the January low. On the flip side, should the support hold buyers could attempt a move back over the 200 sma at 35075.

FX markets USD nudges higher, JPY tumbles

USD is edging a few pips higher, marking the 11th straight day of gains for the US dollar index, which has risen to a 23-month high on hawkish Fed bets.

USD/JPY trades at a fresh 7-year high and aims towards a 20-year high on central bank divergence. The BoJ’s Kudros reiterated the central bank’s accommodative stance overnight.

GBP/USD is edging a few points higher after UK inflation data revealed that inflation hit a new 30-year high of 7% YoY in March, up from 6.2% in February and ahead of forecasts of 6.7%. The pound is struggling around 1.30 on fears that a hawkish BoE could tip the UK into recession.

  • GBP/USD +0.1% at 1.3011
  • EUR/USD +0.04% at 1.0850

Oil extends gain

Oil prices rose 4% yesterday, rising above $100, and are moving higher again today after hopes of a diplomatic solution to the Russian war faded. Meanwhile, soft data from China is keeping gains limited.

The latest peace talks have ended in a stalemate, with Russia accusing Ukraine of derailing talks and saying that it would not ease up in its military attacks. The comments come as the IEA noted that around 1.5 million barrels of Russian oil are expected to be absent from the market in April, with this figure rising to 3 million barrels in May owing to Western sanctions and logistical contains.

OPEC has warned that it is impossible to replace lost Russian oil and has made it clear that it has no intention of raising output.

The easing of lockdown restrictions in China underpins demand, although data also showed that Chinese oil imports fell 14% due to lockdown restrictions.

  • WTI crude trades +1.7% at $101.98
  • Brent trades +1.7% at $106.14

Looking ahead

  • 15:00 BoC rate decision
  • 15:30 EIA crude oil inventories
  • 16:15 BoC press conference

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