US open: Stocks drop as CPI confirms market fears

US CPI jumped 4.2% YoY ahead of the 3.6% forecast. Stocks drop as investors anticipate an earlier move by the Fed.

USA (2)

US futures

Dow futures -0.5% at 34070

S&P futures -0.8% at 4120

Nasdaq futures -1.1% at 13190

In Europe

FTSE +0.6% at 6983

Dax +0.2 at 15120

Euro Stoxx  -0.25% at 3934

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Inflation fears hit stocks, tech tumbles

Rising inflation concerns have been stalking the market all week. Today’s CPI data confirmed the markets’ fear that inflation is roaring higher.

US CPI for April came in at 4.2%, well ahead of the 3.6% forecast and up from 2.6% in March. On a monthly basis inflation surged 0.8% versus 0.2% expected and up from 0.6% last month.

Core inflation also shot higher 3% up from 1.6% in March.

The fact that the US Dollar surged and tech look set to take a hit suggests the market it pricing in a sooner move by the Fed to tighten policy. There is still another inflation print due before the Fed trade decision in June, and another jobs report.

However given surging inflation and commodity price the Fed may have to reconsider how transitory it believes inflation will be.

It’s only Wednesday and the tech heavy Nasdaq will want to be drawing a line under this week. After diving -2.5% at the start of the week, the Nadsaq futures are down a further 1.2% today after the inflation data, taking the hardest hit.

FX – USD jumps, GBP shows reliance on upbeat GDP growth

The US Dollar has surged higher after the stronger than forecast inflation numbers.

GBP/USD – trades lower although is showing more resilience than its peers after upbeat UK GDP data. UK GDP Q1 QoQ -1.5% vs -1.7% expected. March GDP +2.1% vs 1.3% expected and up from 0.4% in February suggests that the UK economic recovery is on the right path.

GBP/USD  -0.43% at 1.4087

EUR/USD  -0.61% at 1.2083

Oil extends gains as OPEC  Raises demand outlook

Oil is charging northwards, extending gains for a fourth consecutive session on demand recovery optimism. Expectations are that the global economy will continues along its path to recovery and oil demand will grow.

OPEC & the International Energy Agency upgraded demand outlook has boosted the price whilst investors look ahead to EIA stockpile data.

OPEC’s latest report indicated that its expects a solid recovery in global demand in 2021. Strong economic growth in the US and China should overshadowing the covid crisis in India, the world’s third largest importer of oil.

API data revealed a 2.5 million barrel draw on stocks piles, just after an 8 million barrel draw the week before. Attention will turn to today’s EIA data for confirmation of the fall in inventories.

US crude trades +1.7% at $66.5

Brent trades +1.1% at $69.26

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Looking ahead

15:00 BoE Governor Bailey speaks

15:30 EIA crude oil inventories

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