OPEC production cuts to boost future inflation

March CPI numbers were lower than before. This is good news but the drop in inflation is likely to be only temporary. OPEC has recently announced new production cuts sending the price of oil higher. Therefore, the future inflation will be higher than the March numbers show.

Stocks rallied initially after the CPI data indicated a decrease in inflation. However, the market soon lost the earlier momentum, and equity indices ended the session near their daily lows. The S&P 500 dropped by 0.4%, the Nasdaq Composite lost 0.9% and the Dow Jones Industrial Average fell by 0.1%. The yield on the 10-year U.S. Treasury note decreased to 3.419% from 3.433%. Gold (0.56%) continued to rally higher as the USD Index fell 0.62%. Today we’ll get more inflation-related data (US PPI) so be ready to trade and tomorrow there's the US retail sales release to trade! I will take a couple of days' break and return to writing analysis on Tuesday next week.

Now that the March CPI report has been released, the market focus is turning to the Fed's rate May meeting. Despite the recent challenges in the banking sector, the housing and services sectors have shown improvements in key inflation measures. This gives the Fed some flexibility in its rate-hiking cycle. However, with inflation still hovering above 5%, the Fed's probably not done hiking yet. The Fed will likely implement one more quarter-point rate hike in May. The central bank needs to signal its commitment to bringing inflation back down to its 2% target.

Some expect, that the Fed is nearing the end of its rate-hiking cycle and is probably getting ready to move to the sidelines. The hope is that this should ease concerns over the possibility of the Fed causing a severe or prolonged downturn in the economy. However, the CPI data was from March and the bad news is that lower energy prices are only temporary. The crude oil market jumped significantly higher last week on Monday following OPEC+'s announcement of a production cut, indicating that we should anticipate rising demand.

DAX

DAX rally was rejected which signals that the market is facing some headwinds. This could lead to a corrective move if the nearest key support at 15 655 is violated. A decisive break below the level would probably take DAX first to 15 600 and then to 15 500 on extension. Above yesterday’s high, the 15 900 level could come into play.

Gold

Gold is bullish above 2001. Below the level, the market could trade down to 1983. In uptrends, the resistance levels are usually violated so the 2032 resistance is probably taken out. If there’s a decisive break above the level, look for a move to 2060.

USOIL

USOIL is bullish above 79.46. Below the level look for a retracement to 76 or so. The bullish breakout from the sideways range after a gap higher indicates the bulls are firmly in the driver’s seat. With OPEC cutting the price of oil fundamentals are supportive of higher prices too. The nearest measured move target is at 84.70 but the market could rally to 89.00 on an extension.

GBPAUD

GBPAUD is ranging sideways above 1.8536. Below the level, we might see a retracement to 1.8435. The nearest key resistance level is at 1.8700 and above the level the market would be likely to trade to 1.8820 or so.

The Next Main Risk Events

• USD PPI
• USD Unemployment Claims
• CAD BOC Gov Macklem Speaks
• USD 30-y Bond Auction
• USD Core Retail Sales m/m
• USD Retail Sales m/m
• USD Prelim UoM Consumer Sentiment
• USD Prelim UoM Inflation Expectations

For more information and details see the TIOmarkets economic calendar.

Trade Safe!

Janne Muta
Chief Market Analyst
TIOmarkets

DISCLAIMER: TIOmarkets offers exclusively consultancy-free service. The views expressed in this blog are our opinions only and made available purely for educational and marketing purposes and do NOT constitute advice or investment recommendation (and should not be considered as such) and do not in any way constitute an invitation to acquire any financial instrument or product. TIOmarkets and its affiliates and consultants are not liable for any damages that may be caused by individual comments or statements by TIOmarkets analysis and assumes no liability with respect to the completeness and correctness of the content presented. The investor is solely responsible for the risk of his/her investment decisions. The analyses and comments presented do not include any consideration of your personal investment objectives, financial circumstances, or needs. The content has not been prepared in accordance with any legal requirements for financial analysis and must, therefore, be viewed by the reader as marketing information. TIOmarkets prohibits duplication or publication without explicit approval.

Janne Muta, M.Sc in FinanceChief Market Analyst

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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