US Open Note – Markets in peace after US CPI figures meet forecasts; Treasury bond auctions in focus


Christina Parthenidou, XM Investment Research Desk

German DAX 30 hits fresh record high

The European session was mostly quiet, with the pan STOXX 600 claiming a small measure of gains as bond yields in the region continued to sideline below this week’s highs along with US Treasury yields. Yet, despite the softer positive tone, the German DAX 30 index managed to pin a new record high slightly above the 14,500 mark on the back of healthcare and real estate shares, which soared by 2.19% and 1.20% respectively, overshadowing the deep losses in industrials.

US CPI inflation don’t cause fireworks

All eyes were on US CPI figures for February in speculation that the massive stimulus from the Fed and the government could spark inflation waves in the months ahead, but the data did not cause any fireworks. The headline CPI advanced to 1.7% y/y from 1.4% y/y as expected and ticked up to 0.4% m/m from 0.3% compared to January, but the slight decline in the core CPI suggested that upside inflation pressures were largely attributed to volatile prices such as food and energy. Probably base effects from last year’s low inflation levels could further distort price indices to the upside during the spring months, though whether the growth in prices may persist for longer and if it can cross above the  2.0% key mark remains to be seen. The understanding is that inflation and the rally in Treasury yields are not seen as problematic by the Fed so far, and even though markets are trying to get ahead of the Bank’s plans, pricing in a rate hike in the next couple of years, they may be disappointed if Powell dismisses once again any changes in its outlook at next week’s policy meeting.

The dollar index continued to flatten around the 92.00 mark and below its 200-day simple moving average (SMA) after the CPI release, while dollar/yen stabilized around 108.50 despite its earlier attempts to surpass the 109.00 level.

A calmer tone also prevailed in European currencies, with euro/dollar consolidating Tuesday’s upturn near 1.1900 and pound/dollar taking a breather marginally below its 20-day SMA and around 1.3900.

Although bond auctions don’t attract attention normally, the panic surrounding the yield rally may shift the spotlight towards the 10-year Treasury auction today at 18:00 GMT.

Futures tracking the Nasdaq 100 and S&P 500 were pointing to a mildly positive open today following the aggressive bullish run in tech stocks on Tuesday.

Bank of Canada announces policy decision

The Bank of Canada’s policy announcement will precede the key 10-year US Treasury auction at 15:00 GMT and although the booming housing sector and the overall robust economic performance in Canada call for some monetary tightening, Macklem would not like to add more fuel to the yield rally. Hence, interest rates may remain steady at a record low of 0.25%, and asset purchases may stay flat. That said, there is an almost 40% probability for a rate hike between September and October and analysts may look for any possible hawkish change in tone to get more clues on rate and asset purchases adjustments in the future.

Dollar/loonie was congested below the 50-day SMA and above the 1.2625 support region ahead of the policy statement. The EIA weekly report for US oil inventories may affect crude prices at 15:30 GMT, likely interrupting the commodity-dependent loonie too.

Gold was slightly up at $1,719/oz.