European Open: USD/JPY eyes a near 20-year high ahead of US inflation

Asian Indices:

• Australia's ASX 200 index fell by -37.3 points (-0.5%) and currently trades at 7,447.90
• Japan's Nikkei 225 index has fallen by -385.58 points (-1.44%) and currently trades at 26,435.76
• Hong Kong's Hang Seng index has fallen by -110.06 points (-0.52%) and currently trades at 21,098.24
• China's A50 Index has fallen by -1.66 points (-0.01%) and currently trades at 13,567.44

UK and Europe:

• UK's FTSE 100 futures are currently down -52 points (-0.69%), the cash market is currently estimated to open at 7,566.31
• Euro STOXX 50 futures are currently down -44 points (-1.17%), the cash market is currently estimated to open at 3,795.62
• Germany's DAX futures are currently down -179 points (-1.26%), the cash market is currently estimated to open at 14,013.78

US Futures:

• DJI futures are currently down -135 points (-0.39%)
• S&P 500 futures are currently down -76 points (-0.54%)
• Nasdaq 100 futures are currently down -21.75 points (-0.49%)

Asian markets tracked Wall Street lower, with the tech-focussed Nasdaq leading the declined. Futures markets for Europe and US are also lower as sentiment for equity traders appears fragile ahead of today’s inflation print and the long Easter weekend.

US CPI at 13:30 BST

Us inflation is the main event today and it is expected to rise from 7.9% y/y to 8.5% - its highest level since December 1981. Core CPI, which excludes food and energy, is expected to rise to 6.6% from 6.4%. It’s not really about the level of inflation anymore as it has been well broadcast that CPI is hotter than hot. The big question is how long it takes to come back down and whether the Fed will tip the US into a recession in doing so. The recent inverted 10-2 yield curve suggest bond traders are forecasting a recession some time in 2023, even if the curve was only inverted for two days. Traders are pricing in an 82% chance of a 50-bps hike in May, and that is likely to increase with a another her hot print today.

126 is pivotal for USD/JPY over the near-term

A clear beneficiary of widening yield differentials has been USD/JPY, which now hovers at its highest level since June 2015. A break above which could see the pair at a staggering 20-year high. The conditions for it to get this far have been ripe as policies for BOJ and the Fed aren’t even in the same room, let alone pointing the same way. Should CPI exceed expectations then USD/JPY might cut through 126 like a hot knife in butter. That said, we might see some profit taking if CPI slightly underwhelms as traders do have a habit of getting ahead of themselves before big numbers. But we don’t see a case for any sizeable pullback on USD/JPY given the extremely hawkish Fed paired being against the forever-dovish BOJ.

FTSE: Market Internals

FTSE 350: 4264.34 (-0.67%) 11 April 2022

• 140 (39.89%) stocks advanced and 197 (56.13%) declined
• 13 stocks rose to a new 52-week high, 2 fell to new lows
• 35.04% of stocks closed above their 200-day average
• 65.81% of stocks closed above their 50-day average
• 9.97% of stocks closed above their 20-day average

Outperformers:

• + 12.66% - John Wood Group PLC (WG.L)
• + 6.86% - Wizz Air Holdings PLC (WIZZ.L)
• + 3.71% - Easyjet PLC (EZJ.L)

Underperformers:

• -6.69% - Aston Martin Lagonda Global Holdings PLC (AML.L)
• -6.14% - Ferrexpo PLC (FXPO.L)
• -4.99% - Johnson Matthey PLC (JMAT.L)

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