US core CPI expected to decrease slightly

BY Janne Muta

|May 10, 2023

After another quiet day, the market focus today is on the US April CPI release as investors hope to gauge the Fed's next move in response to inflation. While the Fed suggested that last week's interest rate hike might be the last, inflation remains the key factor in their data-dependent approach. The Headline CPI is expected to match the previous month's rise of 5%, and Core inflation is predicted to decrease slightly to 5.5% from 5.6%.

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The level is still uncomfortably high for the Fed which would like to see inflation returning to the 2% level. Although the base effect is expected to continue to push inflation numbers lower, it might not be a linear process and we might see occasional higher readings in the CPI. The normalization of supply chains and the slowdown in home prices and rents are expected to be reflected in official inflation data.

Investors are also closely monitoring talks about raising the federal borrowing limit as the US approaches the risk of defaulting on its obligations for the first time, with the government potentially unable to pay its bills on time as soon as June 1 if the debt ceiling isn't raised. Historically, the wrangling between the Democrats and Conservatives has caused shutdowns but the US has never defaulted on its debt.

Since 1976, the US government has experienced a total of 21 funding gaps or shutdowns, as they are commonly referred to. The longest government shutdown in US history occurred from December 22, 2018, to January 25, 2019, lasting 35 days.

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Comcast (CMCSA.OQ) is bullish above 34.62. The stock has outperformed Nasdaq by 15% and the S&P 500 by 18%, since the October 2022 stock market low. While the recent past performance is in no way a guarantee of future results it’s likely to attract those that look to buy dips in stocks showing relative strength. After a dip in Q3 2022 the company has been able to grow its profit margin over the last two quarters. Plus, the recent earnings surprise of 11.74% on April 27th sent the stock higher, resulting in a sizeable 15.23% rally. All this indicates medium-term strength in the stock.

However, yesterday the stock closed below last week's low, indicating some selling pressure in the short term. All in all, the stock's relative strength and uptrend make it a buy candidate after the current corrective move is over. All this is subject, however, to the stock market maintaining upward momentum and the stock staying above 34.62. Below the level, the stock probably trades down to 30.50 or so.

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USOIL is bullish above yesterday’s low at 71.27. The proximity of the 74 resistance level has slowed the market down since our last analysis on May 5th. A decisive break below 71.27 would probably move the market to the 70.00 - 70.90 range.

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AUDUSD uptrend in the 2h chart remains in force above 0.6740 but the market is trading near to 0.6805 resistance level. This is where supply has been too much for the bulls since early March this year. Therefore, the immediate upside is probably limited and if the 0.6740 level breaks we have a bearish 2h timeframe confirmation. However, a decisive break above 0.6805 would also mean a breakout from the trading range that has kept the market moving sideways for about eight weeks.

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FTSE is bullish above 7717 while below the level the market could trade to the last week’s low at 7688. The nearest key price levels for FTSE are 7688, 7717, 7733 and 7807.

The Next Main Risk Events

  • USD CPI & Core CPI
  • CHF SNB Chairman Jordan Speaks
  • USD 10-y Bond Auction
  • GBP BOE Monetary Policy Report
  • GBP MPC Official Bank Rate Votes
  • GBP Monetary Policy Summary
  • GBP Official Bank Rate
  • GBP BOE Gov Bailey Speaks
  • USD Core PPI
  • USD Unemployment Claims
  • USD FOMC Member Waller Speaks
  • USD 30-y Bond Auction
  • NZD Inflation Expectations
  • GBP Prelim GDP
  • 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

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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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