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Surprise jump in US CPI burns another hole in market sentiment

us dollars on fire

There’s been no sign of a respite in selling pressure today coming to the end of a negative week as investors become increasingly concerned about the effects sticky inflation is expected to have on margins, consumer confidence, as well as company earnings.


The early optimism over the reopening of the Chinese economy in the early part of the week, seems a long time ago now, having given way to renewed gloom as authorities in Shanghai reimpose new lockdowns and restrictions, and US inflation hits a new 40 year high of 8.6%. 

Basic resources and energy sectors are acting as the biggest drag on concerns over lower demand, though the resilience in the oil price belies some of that.

Anglo American, Glencore and Rio Tinto are all contributing sizeable points declines, while modest weakness in oil prices is weighing on Shell and BP.

There hasn’t been much in terms of positivity, however GSK shares are outperforming after announcing positive phase 3 results for its RSV vaccine candidate, for older adults. The vaccine has been designed to deal with respiratory tract infections in older adults who may be immuno-compromised. 

Just Eat shares are one of the better performers today on reports that private equity company Apollo Global could be interested in acquiring its US GrubHub business. Back in April Just Eat said it was considering offloading the GrubHub business, less than a year after completing the deal for the price tag of £5.8bn.

Last month the shares hit 5-year lows and are down over 80% from their October 2020 peaks as higher costs and more competition eat into its margins. In Q1 the US business saw a 5% decline slump in orders, however it’s not been unique in that with southern European and ANZ region seeing a 4% decline, and UK and Ireland seeing no change.  The reality is any purchaser won’t be paying anywhere close to what Just Eat paid for the business which means the prospect of a big write down. 


US markets closed sharply lower yesterday, spooked by concerns that today’s May CPI report may well prove to be stickier than predicted, which in turn could mean the Fed is much more aggressive when it comes to normalising monetary policy.

Today’s CPI report confirmed for May those fears as headline inflation jumped to a 41-year high, coming in at 8.6% and making it all the more likely that we will see 50bps rate hikes at the next three Fed rate meetings. Any thoughts that we might see a pause in September now appears a remote prospect, with US markets opening sharply lower, even after yesterday’s big declines. 

US bond markets saw US 2 year and 5-year yields surge, flattening the yield curve further with the 5-year yield, moving sharply above the 10-year yield, and underscoring concerns that a US recession could be on the way, especially given that Michigan consumer confidence slumped to a record low in data released this afternoon.

On the earnings front DocuSign shares have slumped sharply after profits in Q1 came in lower than expected, prompting broker downgrades in the process. Revenues were better than expected at $588m, however profits missed expectations, coming in short at $0.38c a share. The company also fell short on guidance downgrading its Q2 forecasts for billings, as well as for the rest of the year.

Elsewhere today’s weakness is broad based with consumer discretionary being hit the hardest. Online streamers Netflix and Roblox have been hit hard after being downgraded by Goldman Sachs. eBay is also lower for the same reason. 


The US dollar has been the best performer this week and was given an added kick higher this afternoon after today’s red hot US CPI number, which saw headline inflation hit its highest level since November 1981, as traders ramped up rate hike expectations for this year.

The Swiss franc is amongst the worst performers this week, ahead of next week’s Swiss National Bank rate meeting, where they could use the recent pivot by the ECB as an excuse to exercise a pivot of its own.

The Japanese yen is clawing back some ground after the Ministry of Finance, along with Bank of Japan, officials expressed concern about the fall in the currency.

Putting to one side the reason that yen is declining is because Japan wants it to, the Bank of Japan was fairly explicit at its last meeting when it said it expects “short-term and long-term policy rates to remain at their present, or lower levels”. When other central banks are looking at raising rates quite sharply what did they expect to happen? The decline in the Japanese yen is on them and they are only now trying to put the genie back in the bottle. Perhaps next week’s Bank of Japan central bank meeting will prompt a change of tone?    


Despite the prospect of new restrictions in China, crude oil prices are showing little sign of slowing, although today’s hot CPI number has seen prices slip back as concerns grow over possible demand destruction. The surge in the US dollar today has also served to act as a cap on prices.

This disappointment over the speed over a China reopening has seen copper prices fall back sharply this week, wiping out most of the gains of last week.

Higher bond yields and a stronger US dollar is also weighing on gold prices which have also slipped back to the lows seen last week.


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