Thursday May 29th, 2008
Inflation and oil the talk of the town
Inflation and oil continue to be the main focus of the markets. Yesterday saw the USD gain across the board on the back of oil retreating to as low as USD 126 at one point. Also supporting the USD was better than expected durable goods orders which declined less then forecasted revealing a surprisingly robust data given the current conditions while weak French consumer confidence weighed on the EUR. The move in oil has since reversed however with Crude back through USD 130 a barrel on the back of Nigerian supply concerns.
Moving on to inflation which appears to be the main concern in the markets and whether economies can avoid the nasty Stagflation monster. The USD has received a boost from comments made by Fed members yesterday. Fisher started last night with stating inflation is the bigger risk to the economy and a concern to all FOMC members. Other members are also speaking today and it is expected they will reiterate the message of price stability ie controlling inflation. This change in stance, focussing on inflation, from the Fed’s initial response to the credit crisis of pumping liquidity into the market and cutting rates has seen the 10yr US Treasury yield rise back above 4% for the first time this year.
Also commenting on inflation was Trichet saying that the job of the central banks is to preserve medium term price stability and keep inflation expectations well anchored. No chance of a rate cut in the Eurozone soon!
GBP/USD started the day just above 1.9800 before retreating to just shy of 1.9700. There was a spike back towards 1.9800 overnight but this morning has seen the GBP/USD move back to 1.9725. The EUR/USD was hit harder yesterday on the French consumer confidence data falling to 1.5605. The EUR has continued its decline dropping below 1.5600 this morning. GBP/EUR as a result climbed up to 1.2680 but slipped a little to be trading at 1.2650 this morning.
Today’s data includes German unemployment, US initial jobless claims and USD GDP while the Fed’s Geithner and Chairman Bernanke are speaking during the day.
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