Asia Morning Bites For Wednesday, February 14

The rise in US yields has provided the USD with additional support, and EURUSD is now down to 1.0710, and has bounced off 1.07 a couple of times. The AUD has taken a pounding, dropping to 0.6453. Cable also dropped sharply but was marching higher ahead of the CPI result, helped by strong UK wages data, and has only fallen back to 1.2592. The JPY has pushed up through 150 to 150.65 currently and verbal intervention has already started. In the rest of Asia, the SGD took the brunt of the USD strength, and the SGD has weakened by more than half a per cent, trading up to 1.3511. The SGD was pushing down through 1.32 at the end of December, showing how much has changed. China is still out for the Lunar New Year holidays. Not surprisingly, US equities did not take well to the CPI data. The S&P 500 fell 1.37% and the NASDAQ fell 1.8%. Equity futures show the rout continuing today.

The short story on CPI is as follows: Both the headline increase in CPI (0.3% MoM) and the core (0.4%) were not only worse than expected but considerably above what is needed for inflation to fall consistently towards the Fed’s target goal. Airfares, shelter, recreation and medical costs all helped push the figures higher. The good news, and there is none in this report, is that the actual target measure of inflation, core PCE, has been dropping very nicely so far. We don’t yet have the January PCE figures, and they usually reflect the CPI numbers to a large degree. But there has to be some risk that we also see a slowdown in the progress of the Fed’s preferred measure of inflation too. In any case, the divergence in the various inflation measures makes it even more doubtful that the Fed is going to be rushing headlong into easing any time soon. Today, there is no US data apart from mortgage applications. In the UK, we get January CPI inflation. This may also show that progress on getting inflation lower has stalled. 4Q23 Eurozone GDP should be confirmed at 0.0% QoQ.