Crude Oil, US Dollar, Fed, US CPI, USD/JPY, YEN, S&P 500, Gold – Talking Points
- Crude oil prices braced against volatility as the USDollar roared
- APAC equities got smashed alongside all other stock markets in the fracas
- US PPI might have more attention than usual.Will it impact oil prices?
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Crude oil prices have largely avoided the wrecking ball swinging through markets after US CPI beat expectations.
Risk assets have been pummelled in the melee, but crude oil has held up reasonably well. The WTI futures contract is just under US$ 87 bbl while the Brent contract is near US$ 96.50 bbl at the time of going to print.
At the close of the North American cash session the Dow Jones, S&P 500 and Nasdaq were down 3.94%, 4.32% and 5.16% respectively. Surprisingly, the VIX index only managed to nudge just above 28, compared to a high near 39 in January.
For the record, headline month-on-month US CPI for August came in at 0.1% instead of -0.1% anticipated and against a flat number for July. The year-on-year figure was 8.3% rather than the 8.1% forecast and 8.5% previously.
Excluding food and energy – volatile items that can obscure larger trends – month-on-month US CPI was 0.6% as opposed to 0.3% which was expected and seen in the prior month. The annual read came in at 6.3% instead of 6.1% versus 5.9% previously.
The idea that inflation may have peaked has been scrapped. Prior to the data, the market was looking for a Fed hike of 75 basis points (bps) next week, followed by a hike of 50 bps, then 25 bps. That notion has been tossed aside and high rates for longer are being priced.
The 1-year Treasury note shot up 23 bp to be yielding over 3.9%, a level not seen since the tech wreck in 2001.
The US Dollar roared across the board in the aftermath of the figures. Not surprisingly, the growth-linked AUD, NOK and NZD were the hardest hit. Gold went lower and remains near US$ 1,700 an ounce.
Most currencies have been fairly quiet through the Asian session, with the exception of the Japanese Yen.
Initial jawboning from Finance Minister Shunichi Suzuki saw USD/JPY ease back from the 24-high of 144.99 and then the Nikkei newspaper reported that the Bank of Japan (BoJ) was checking rates with banks in Tokyo.
This could be indicative of possible intervention. The last time USD/JPY saw selling intervention was in 1998 when the Federal Reserve teamed up with the BoJ.
The 10-year Japanese Government Bond (JGB) is back at the upper bound of the BoJ’s tolerance of 0.25%.
APAC equities have tanked in a sea of red with the main indices down over 2%. Australia’s ASX 200 was hit hard.
The Chinese Yuan fixed stronger again, but all other Asian currencies are generally weaker versus USD.
Looking ahead today, after UK inflation data, US PPI could provide some more fireworks
The full economic calendar can be viewed here.
Recommended by Daniel McCarthy
How to Trade Oil
WTI CRUDE OIL TECHNICAL ANALYSIS
WTI has consolidated after making an 8-month low last week at 81.20 but it was unable to close below a prior low at 81.90. These levels may provide support.
The price remains below 21-, 55-, 100- and 260-day simple moving averages (SMA) and this may indicate that underlying bearish momentum is yet to be overcome.
Resistance might be at a recent peak of 90.39 ahead of a breakpoint of 90.56.
— Written by Daniel McCarthy, Strategist for DailyFX.com
To contact Daniel, use the comments section below or @DanMcCathyFX on Twitter
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