The US inflation report remains front of mind today and we’re seeing that reflected in early cautious trading in Europe, with US futures also marginally lower ahead of the open.
The fear is that inflation remains more stubborn than the Fed is willing to tolerate in the near term alongside a labour market that is still hot, despite small signs of cracks appearing.
The central bank has made it perfectly clear that returning inflation to target over the medium term remains the primary goal whatever the cost but we’ve now likely entered the uncomfortable period in which things are breaking, credit conditions are tightening considerably but the data isn’t quite there yet.
The monetary policy lag was always likely to complicate the exit strategy and could ultimately be what pushes the Fed to tighten too far – if it hasn’t already – and trigger a more painful recession. A softer inflation reading today would bring some light relief after Friday’s jobs report but it may take more than that to win policymakers over.
Oil slips after retracing back to previous trend lows
Oil prices are slipping on Wednesday after partially recovering over the last four day. Crude ran into resistance around the bottom of the December-March range lows which suggests, for now at least, traders are not of the view that OPEC+ output cuts fully offset the difficulties that lie ahead for the global economy which will ultimately weigh on demand.
Further action by the cartel or calmer conditions in US banks could see oil prices bounce back once more but for now, we may have entered into a period of uncertainty ahead of the OPEC+ meeting in June. At which point the group could opt to prop up the market once more, especially if prices remain under pressure.
Make or break release for gold?
Gold is treading water ahead of the CPI data, a release that could be the catalyst for new record highs in the yellow metal or a broader correction. It’s already struggled around those previous highs and a hot inflation number today could put an end to hopes of new records in the near term. Of course, there’s still some way to go before it reaches key support around $1,970 but a break of this could signal a deeper correction.
For a look at all of today’s economic events, check out our economic calendar: www.marketpulse.com/economic-events/
Craig Erlam, Senior Market Analyst, UK & EMEA, OANDA
