US Open Note – Wall Street opens higher; commodity currencies outperform



Global stocks cautiously up

Wall Street started Wednesday’s session on the bullish side, with Dow Jones gaining the biggest traction. Buying interest, however, remains relatively constraint as questions about how the cocktail of inflation and monetary tightening will affect global economic growth weigh on risk-on sentiment.

Growth risks are larger in Europe, which has stronger trade ties with Russia and Ukraine than does the US, though the rapid rise in consumer prices is calling for a stimulus reduction, keeping the ECB trapped between a rock and a hard place. Nevertheless, a new spike in real bond yields and encouraging earnings in the banking and food sectors helped European stocks to pick up steam.

Tesla reports Q1 earnings

Regarding earnings, the spotlight will turn to Tesla’s results due after the closing bell today. Musk’s offer to buy Twitter and take it private, de-listing it from the stock exchange, sent headwinds to Tesla’s stock last week despite a record increase in car deliveries as investors got suspicious that the richest man in the world would sell his Tesla shares to pay an eventual deal. Investors will wait for fresh updates on the matter today, while the company’s first quarterly results are expected to stay robust despite a potential quarterly slowdown. How the popular electric car company deals with inflation and supply disruptions could also attract attention as Tesla’s stock keeps fluctuating sideways.

Yen, euro switch to recovery mode

Meanwhile in the FX space, the sharp sell-off in the Japanese yen was taking a breather at the time of writing. The Bank of Japan (BoJ) pledged to make consecutive unlimited fixed rate purchases for 10-year government bonds during the next week with scope to defend its yield curve control, though as long as monetary divergence with other major central banks gets wider, any recovery in the yen could be short-lived. Even verbal intervention from the central bank seems to be inefficient, barely supporting the yen so far.

Dollar/yen is currently changing hands lower at 128.00 level following the bounce from an intra-day low of 127.59, while euro/yen and pound/yen are trading slightly negative near Tuesday’s closing prices at 138.69 and 167.11 respectively.

Euro/dollar switched to a recovery mode after ECB governing council member Martins Kazaks underlined inflation risks and raised the stakes for a July rate hike, sending the pair as high as 1.0865 against the US dollar. Upbeat industrial production data and stronger producer price indices out of Germany have likely aided the upturn in the common currency as well; however, flash Eurozone PMI figures on Friday and, more importantly, final round of the French election on Sunday are still threatening a bearish reversal.

Canadian inflation hits 31-year high; New Zealand Q1 CPI inflation next in focus

Consumer prices in Canada surged at a faster pace than analysts expected by 6.7% y/y, the highest in 31 years, making a double rate hike a likely scenario in June. Dollar/loonie plunged to 1.2500 in the aftermath. Perhaps, the dollar weakness enhanced the decline since other loonie pairs rose only moderately.

New Zealand will be next to report inflation during the Asian trading hours at 23:45 GMT. The quarterly figures for the three months to March are expected to show inflation heating to 7.1% y/y from 5.9% previously. Investors are certain that the Reserve Bank of New Zealand will deliver a 25 bps rate hike in June; however, a more aggressive 50 bps rate increase cannot be excluded, especially if CPI readings beat expectations. Should the data endorse that scenario, kiwi/dollar could stretch today’s quick rebound above the nearby resistance of 0.6790.

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