Russell Shor

It is reacting slower than expected, but the NAS100 IS reacting to higher real rates.

FXCM’s USDOLLAR has charted a lower peak followed by a lower trough. This is a defined down trend.

Sticky inflation persists. The prices of median goods and services have ticked up. This slow change of prices is a headache for the Federal Reserve. They will worry that inflation expectations have anchored to an elevated level.

The AUDUSD charted a spinning top yesterday. This is a candle of uncertainty. Bulls tried to take price up and bears tried to take price down. Neither was successful, with AUDUSD closing fairly flat on the day.

UK headline inflation dropped to 10.1% with a 4% drop in petrol and diesel prices in January. The core inflation rate decreased below 6%. The continuous disinflation trend in goods categories due to improving supply chains and lower consumer demand is linked to the decline in core inflation.

The real yield is in its hawkish channel, between the upper blue and red bands (top chart). The core CPI printed at 0.4% m/m, higher than the previous 0.3% m/m. This is 4.9% annualised, much higher than the previous 3.66%. The Fed still has work to do to bring core inflation down towards its target of 2% average.

Core inflation dropped to 5.6% y/y, down from the previous print of 5.7% y/y. The decline gives way gradient (blue circle) and missed the consensus of 5.5% y/y. It is moving in the right direction.

FXCM's 2023 outlook webinar, hosted by senior market specialists Russell Shor and Nikos Tzabouras.

The market has been resilient despite the poor showing. This is telling. Dow Theory maintains that a bull market has three phases. The first phase, accumulation, sees smart money recognising the current poor conditions, but positioning for the turn up. Bids increase as selling volumes diminish. There is a feeling of pessimism. However, prices have stopped going down. This matches with current resiliency.

Following the blowout jobs report, markets are largely data driven. This week sees a slew of important data. Out of the US inflation, retail sales and industrial production. On the UK front, the calendar has jobs, CPI and retail sales and the EU will see GDP on Tuesday. Diplomatic relations between the US and China are deteriorating rapidly following last week’s shooting down by the US of a Chinese balloon…

A surprise announcement on Friday saw Japanese Prime Minister Kishida appoint Kazuo Ueda as the new BoJ governor. Ueda is a hawk relative to Mosayoshi Amamiya, the current deputy governor. However, his current leaning will probably have a dovish tilt with monetary policy shifting slowly.