Diving into the CPI numbers

The strong demand for the US 30-year bond auction, that followed two other strong 3 and 10 year auctions this week triggered no appetite across the US bonds space yesterday, most probably because the 30-year paper is a long maturity paper and is mostly purchased by insurance and pension funds. But the week has been successful for the US Treasury department which saw a solid demand for its debt this week, and that’s thanks to the expectation that the rates will fall – sometime this year – and that the Treasury will also slow down the pace of purchases moving forward.

Appetite in risk assets remains robust. The S&P500 index shortly traded at the 5000 psychological mark before closing a few points below this level. The rally is not only fueled by rate cut expectations and AI speculation but is also backed – to some extent – by encouraging tech earnings from the stars of the league. Note that Apple, Microsoft, Alphabet, Amazon and Meta generated nearly $140bn cash from their operations last quarter. That was the highest on record.

CPI revisions

The Bureau of Statistics will release the CPI revisions today, which consists of the revised month-over-month CPI figures for the past five years, incorporating some adjustments. What’s important to know is that the non-seasonally adjusted data remains unchanged, hence the year-over-year figures for the entire year will remain the same.

Why do people care? Normally, they don’t, because these changes are small and don’t change the end result. But last year, the markets cared because the revisions were more significant than usual and resulted in lower adjusted m-o-m inflation numbers for the first half and higher revisions for the second half – a hint that the moderation in inflation was not as good as thought in the second half of 2022. The latter boosted the Federal Reserve (Fed) rate hike expectations and fueled the US 2-year yield. Today’s revisions could reveal if the downtrending US inflation numbers hide a more significant slowdown, or a late pick up. If the revisions hint at a slowing momentum in monthly inflation figures, the Fed doves should come back in charge and the dollar should eas. If the monthly revisions warn that inflation may not be slowing as fast as we think, the Fed doves will further retreat, and the dollar should gain. And if there are no major revisions, well all eyes will turn to next Tuesday, regular CPI update. And so goes life.

FX and energy

The US dollar struggles to gain further momentum above the 100-DMA. But the US economy’s positive divergence from the rest of the developed nations, its healthy jobs market, its decent fiscal spending are supporting the idea that the Fed is – maybe – not the best candidate to begin the pivot dance. The European Central Bank (ECB) for example is in a better position to start cutting its interest rates to prop up its depressed economies. That idea keeps the EURUSD offered near its own 100-DMA – which stands near 1.0780. Trend and momentum indicators remain comfortable negative and supportive of a deeper downside move in the EURUSD. Today, the German inflation data is expected to confirm a slowdown below the 3% in January – that should help the bears stay in charge.

Elsewhere, the yen bulls are feeling the heat of a totally unexpected return to nearly 150 level at the start of this year. The USDJPY is now trading above the 149 level, and the BoJ hawks are giving in to the expectation that the Japs won’t move soon or quick enough to make 2024 the year of the yen. The USDJPY’s positive trend becomes increasingly vulnerable to verbal intervention as we approach the 150 level.

In energy, we see a second positive attempt above the $76pb level, despite a 5.5-mio barrel build in the US inventories. The rising geopolitical tensions, strong US growth, and Chinese stimulus remain supportive for another attempt above the 200-DMA – near $77.50pb.