Headlines

*Dollar bruised after US inflation comes in below expectations

*Fed officials unswayed by softer CPI, see rates hikes into 2023

*Nasdaq rallies more than 20% from recent lows

*Asia shares join global risk rally, Disney tops Netflix in streaming subscribers

US equities surged after the US CPI data with the Nasdaq 100 jumping 2.9% and the broader S&P 500 gaining 2.1%. Tech and consumer discretionary stocks led the market higher. The benchmark S&P 500 closed at its highest level since early May. Asian stocks joined in the risk rally with the broad MSCI index surging to its highest level in six weeks. Hong Kong jumped 1.8% and China’s blue-chip index gained 1.5%. US futures are indicating a positive open in the green.

USD was mostly lower against its peers with the DXY at one point suffering its biggest intraday drop since 2020. It printed a low of 104.64 before closing at 105.20. USD took out some major levels with USD/JPY falling three big figures breaking below 133.50. The EUR pushed above 1.03 to 1.0350 before pulling back. GBP surged 1.2276 before closing at 1.2210. AUD traded above 0.71 for the first time since early June. NZD hit 0.64.

Event Takeaway – US CPI just one data point

The morning after the day before. Risk on mode went into overdrive yesterday on the better headline US CPI data. Equities rallied while the dollar sank initially. But crucially this turned as the Treasury market’s reaction faded amid continued fresh hawkish Fedspeak. The commodities surge as the greenback weakened and demand outlook brightened also softened through the day. Gold notably was unable to hold its gains above $1800.

At the close, the market was pricing in around 60bps for the September FOMC meeting. That means a 100% chance of a 50bp move and a roughly 40% probability of a 75bps rate hike. We still have another CPI report to come and also NFP data before the next Fed meeting in late September. While peak inflation is being proclaimed, as we have consistently said, we are still way above the Fed’s target of 2%. It is now the pace of the decline rather than the direction of the move which is important. Under the hood, that means a battle of goods disinflation versus sticky services prices.

Chart of the Day – Nasdaq bull market

It’s been called (another) “most unloved rally” as many fund managers were convinced the market was going much lower. But the Nasdaq 100 has now risen 21% from its intraday low from mid-June this year. Technically that means we are in a new bull market. The initial fall in Treasury yields plus better-than-feared earnings in the past weeks has propelled the tech-heavy index higher. But we note continued hawkish Fedspeak, especially from officials normally a lot more dovish. “Tightening will continue into next year” and a terminal Fed funds rate of “4.4% in 2023” should get equity bulls attention. Current market pricing is for just 3.1%.

The chart clearly shows the push higher from the lows at 11,037. Last week’s high at 13,419 is initial resistance which we didn’t quite manage to close above yesterday. We are also at the top of the bear channel. Bulls will target the next Fib level (61.8%) of the March/June move at 13,650. Support is the 100-day SMA at 12,849.