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US inflation is at 40-year highs

Today was always going to be a focal point for the markets as the ECB and US inflation data took center stage. The euro came off worse and the flows went into the commodity pairs and the US dollar.

Market Wrap

According to the US Bureau of Labor Statistics, US inflation rocketed to a new record of 7.9% in February. The monthly change was 0.8%, as predicted by the market. As a result, the US has experienced the biggest 12-month increase since the end of January 1982, led by index increases for gasoline, shelter, and food. The energy index rose 25.6%, and the food index grew 7.9%.

US President Joe Biden said that rising energy prices caused by Russian President Vladimir Putin's "aggressive actions" in Ukraine largely contributed to the latest surge in US inflation. Though more knowledgeable market commentators and Russian President Putin were quick to point out that the sanctions had not been considered as part of the data set used when formulating this inflation data for February. The Russian intervention in Ukraine began on February 24, and Biden imposed sanctions on Russian imports of energy this week. So things are due to get worse.

Biden stated that "Americans' budgets are being stretched by price increases and families are starting to feel the impact of Putin's price hike" but insisted that he was always aware there would be "costs at home" because of "crippling sanctions" against Russia. Still, he insisted the costs for Putin and his "cronies" are "far more devastating" than those Americans are facing.

According to Putin, when it comes to oil and gas, US consumption of Russia's oil and gas accounts for only 3% of US energy consumption, so it cannot be the reason for rising energy prices in the US.

Iran's national security chief Ali Shamkhani said the United States made "unreasonable offers" for reaching a nuclear agreement and "The US approach to Iran's principled demands, coupled with its unreasonable offers, show that the US isn't interested in striking a deal strong enough to satisfy both sides," Brent kept falling but if the deal was on the rocks, I was expecting more of a turn higher today.

The latest commitment of trader’s report shows that the producers have begun to hedge their positions and have locked in oil prices around $114 per barrel.

According to the US Department of Labour’s report today, initial unemployment claims in the United States increased to 227,000 from 216,000 in the previous week. The 4-week moving average increased by 500 from the previous week's revised average.

During its March 2022 meeting, the European Central Bank surprised many by ramping up the APP schedule. The ECB even said that it could end in the third quarter if the medium-term inflation outlook remains intact. Monthly net purchases will now amount to €40 billion in April, €30 billion in May and €20 billion in June, compared to €40 billion in Q2, €30 billion in Q3, and €20 billion in Q4 previously set.

The EURUSD initially spiked higher as money markets started pricing in a 40bps rate hike by December 2022. This increase in yields dragged up the euro, stopped a lot of traders into a long, and then they pulled the rug from under them. The next level of interest will be around the 1.0950 some 200 pips lower than today’s high. It should also be noted that the turn came at the previous market structure, so support became resistance.

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