US stocks are weakened as mounting inflation risks continue to drive Fed rate hike bets. The Nasdaq is getting hit the hardest as yields are moving higher again. Energy costs are rising and disinflation trends are about to have a rude awakening next week. Traders are fearful that the Valentine’s day inflation report will vindicate the Fed’s stance that ongoing rate increases will continue.
US data
The University of Michigan Sentiment report showed a headline improvement to 66.4, the best levels in over a year. Current conditions impressed, while expectations worsened. What caught everyone’s attention was the surge with 1-year inflation expectations. The key gauge for inflation a year out, rose from 3.9% to 4.2%. The economy is still looking good, which could end up being inflationary.
FX
The Japanese yen rallied after reports that Deputy Governor Amamiya, the front-runner to head the BOJ, turned down the job. Japan PM Kishida is now expected to nominate Kazuo Ueda, professor and former Bank of Japan board member. Amamiya was viewed as a dovish candidate as he wasn’t expected to be a big change from Kuroda.
Ueda is a surprise pick who has refrained from being aggressive with the idea of tightening policy. FX traders view Ueda as a solid pick who is not as dovish as Amamiya potentially could have been. Ueda was a dissenter during a pivotal 2000 rate hike that went against the government’s liking.
Oil
Crude prices are rallying as Russia plans on lowering its oil output by 500,000 barrels a day next month. The oil market is getting tighter and OPEC+ doesn’t appear like it is ready to fill in the void. As sanctions intensify against Russia, the most painful countermeasure appears to be sending the oil prices higher.
So much for a balanced market, energy traders are not going be betting against OPEC+ anytime soon. Short-term momentum from China, no more SPR support, and Russia’s lower output should support Brent crude to make a move towards the $90 level.
Gold
Gold prices continue to hover around the $1880 region as investors await next week’s CPI report. Upside risks with this inflation report could complicate how high Fed tightening bets go, which could keep gold vulnerable. Month over month increases were expected and on top of that you have the BLS changing the category weighting. If the bond market selloff continues, the dollar will rally and that should take down gold prices.
Crypto
Bitcoin drifted lower on both hawkish bets hit the bond market and after Kraken’s SEC settlement. Risk aversion appears to be in place and that could continue if next week’s inflation report is hot. Investors might dial up bets on how high the Fed will have to take interest rates and that could support a broad move lower for all risky assets, especially crypto.
Kraken’s $30 million SEC settlement comes with the ending of their unregistered staking services. Fears are elevated as a lot of staking might end as registering with the SEC might be not worth the hassle for some companies.
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Ed Moya
His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies.
Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Prior to OANDA he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news.
Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business, cheddar news, and CoinDesk TV. His views are trusted by the world’s most respected global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Seeking Alpha, The New York Times and The Wall Street Journal.
Ed holds a BA in Economics from Rutgers University.
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