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Analysis

Low CPI expectations boost the stocks

BY Janne Muta

|June 13, 2023

US equities opened the week on a positive note after S&P 500 had rallied over four consecutive weeks. Investors are bullish as the analyst consensus expects the US annual CPI to drop to 4.1% from 4.9%. The technology, communication services, and consumer discretionary sectors took the lead, highlighting investors' hunger for growth stocks. Bond markets and gold remained relatively quiet, while USOIL traded lower by 4.35%. Weakness in oil is probably related to the slowing Chinese economy.

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Recent concerns about a recession have subsided as employers continue to hire, consumer spending remains robust, and both the housing market and the banking sector show signs of stabilization. Investor sentiment, as reported by the American Association of Individual Investors, has improved substantially, reaching 44.5%. This is the highest level since November 2021. Even the more risky and economically sensitive small-cap stocks are rallying.

Today’s CPI numbers are likely to set the tone for trading over the summer months. Everyone expects inflation to drop again and if that’s the case we should look for the rally in equities to continue and further weakness in the dollar. On the other hand, the one-sided expectation creates a possibility of substantial price volatility in several markets should the inflation come in higher than anticipated.

In China, the authorities are reacting to the slowing economy. The PBOC cut its seven-day reverse repo rate by 10 basis points to 1.90%. If the economic weakness continues it is likely to eventually slow down the AUDUSD rally. However, there are rumours of China considering a substantial stimulus package to boost the economy.

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EURUSD

EURUSD is bullish above 1.0733 and could move to 1.0830 and then to 1.0880 on extension. Below 1.0733, look for a move to 1.0711.

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AUDUSD

AUDUSD remains bullish above 0.6730. Below the level, the market probably trades down to 0.6650.

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USDCAD

USDCAD is trending lower in the 2h chart but has reached a range low in the daily timeframe chart. If there’s a decisive rally above 1.3388, the market probably moves to 1.3500. Below 1.3388, look for a move to 1.3280.

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EURJPY

EURJPY is bullish above 150.06 and could trade higher to 152. Below the level, a move to 149.30 would be likely.

The Next Main Risk Events

  • EUR German ZEW Economic Sentiment
  • USD CPI
  • GBP BOE Gov Bailey Speaks
  • GBP GDP
  • USD PPI
  • USD FOMC Economic Projections
  • USD FOMC Statement
  • USD Federal Funds Rate
  • USD FOMC Press Conference

For more information and details see the TIOmarkets economic calendar.

Trade Safe!

Janne Muta
Chief Market Analyst
TIOmarkets

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Janne Muta

Janne Muta holds an M.Sc in finance and has over 20 years experience in analysing and trading the financial markets.

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