Russell Shor

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.

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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.

The non-farm employment change shows that the labour market is slowing but still resilient. This week will see CPI and retail sales released. Tightening seems to be making an impact. FOMC minutes will be released on Wednesday with Australian employment data and UK GDP and industrial production out on Thursday. Q1 earning seasons is set to kick off this week with airlines and banks.

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.

The markets have likely been running on the blowout non-farm employment change (NFP) released on 3rd Feb (orange dashed vertical), over any Fed communication. This suggests a heavy reliance on data and tomorrow we get the CPI at 1:30 pm GMT.

The SPX500 charted a higher trough and a higher peak on its weekly time frame. This is an uptrend. Its stochastic is in its upper quintile (green rectangle), suggesting bullish momentum. The longer time frame is meaningful; the index’s primary trend is positive.

Russia announced it is cutting its oil production by 500,00 bpd in March. This is in response to the West imposing price caps on Russian oil and related products.