*US stocks rallied for a fifth day and are near record highs
*USD touched three-week lows before recovering
*JPY skids to four-year low at 114.70
*UK CPI 3.1% y/y vs 3.2% expected/previous, Core 2.9% vs 3% exp, 3.1% prior
US equities recovered with all indices edging near to their all-time peaks. The Dow is 0.49% below its record, S&P500 0.58% and Nasdaq 1.78%. A mix of growth and defensives led the gains with tech and healthcare strong. Netflix posted its strongest subscriber growth of the year. Asian markets are mixed this morning and US futures are modestly in the red.
USD continues to struggle touching lows at 93.50 before closing slightly higher. EUR was seen slipping back from 1.1670. GBP hit highs at 1.3835 before retracing around trendline resistance. AUD, NZD and CAD continue to lead gains versus the greenback with all three making new multi-month highs.
Market Thoughts – Risky assets continue to do well
A quiet day in markets yesterday saw risk remain bid with the commod-$s making more gains and the yen selloff ongoing. Government bond yields rose despite the softening global growth outlook and rising inflation fears.
Going forward, fiscal support is expected to dwindle amid ongoing supply shortages in goods and labour. With downside risks to Chinese growth, manufacturing currencies like the euro may struggle, especially against those central banks likely to tighten policy in the near future.
Chart of the Day – EUR/GBP threatening a breakdown
UK CPI just got released and missed estimates by a tenth in both the headline and the core. This is the calm before the inflation storm in the UK as CPI could push near 5% over the winter as energy prices hit household bills. Add higher taxes to this headwind too and none of this points to a strong UK consumer in the near term.
That said, money markets have priced in a rate hike for November and a total of 100bps over the next year. The BoE has forecast CPI going to 4%, double its target. Meanwhile the ECB remains dovish and believes inflation is largely transitory.
EUR/GBP recently broke down through the August lows at 0.8450. Prices are consolidating below here just above the recent low at 0.8420. Sellers will target the February 2020 bottom at 0.8281 if bearish momentum picks up.
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