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Forexlive Americas FX news wrap 13 Jun: US CPI comes tumbles to 4% in May | Forexlive

The US May CPI came in a touch weaker than expectations at 0.1% vs 0.2% estimate. That took the YoY level to 4.0% from 4.9% thanks to a 1.0% reading from a year ago dropping out of the equation. Next month there will be one more big number exiting which should bring the YoY inflation to potentially below 3% (1.3%). The problem with the data, is the core measure remained elevated at 5.3% after a 0.4% rise. That is the 3rd consecutive 0.4% rise, with the last 5 months showing a cumulative rise of 2.1% – above the 2% target. Core inflation is not likely to move below 2% for some time absent negative numbers going forward.

Shelter continued to be a problem with a gain of 0.6% after it dipped in the prior month to 0.4%. Other components showed:

  • The Food index increased by 0.2% in May, showing a slight rise from the flat growth in the previous two months. Over the past 12 months, the index rose 6.7%.

  • The Food at home index showed a slight increase of 0.1% in May, after two consecutive months of decline. The annual increase was 5.8%.

  • The Food away from home index continued to grow at a steady rate of 0.5%, similar to April, and increased 8.3% over the past year.

  • The Energy index took a significant drop of 3.6% in May after a slight increase in April. Over the past year, the index decreased by 11.7%.

  • Significant decreases in May were seen in Energy commodities (-5.6%) and Gasoline (-5.6%) after increases in April. The annual decreases were also considerable, -20.4% and -19.7% respectively.

  • Used cars and trucks showed a large increase in May (4.4%), the same as April, reducing the annual decrease to -4.2%.

  • The Shelter index grew by 0.6% in May, with an 8.0% increase over the past year.

  • The Transportation services index increased by 0.8% in May, showing recovery after a decrease in April, and saw a notable annual increase of 10.2%.

Looking at the numbers, the good news is things could have been worse. The energy declines in 2023 have been large (making up for the gains last year). However, the food we need to eat (accounts for 13.4% of the CPI) and the shelter we need to live in (accounts for 34%), are continuing to show high levels. Shelter at 8.0% YoY is THE major contributor to the inflation and food up 6.7% is also sticky and makes 2% a tough hurdle (barring negative readings going forward).

US yields moved lower initially after the report but then reversed higher despite the expectations that the data all but guarantees a “skip” when the Fed meets tomorrow. A look at rates shows:

  • 2-year yield 4.6704%, up 7.8 bps
  • 5-year yield 3.992%, up 7.7 bps
  • 10-year yield 3.925%, up 5.4 bps
  • 30-year yield 3.924% up 2.2 bps

The 5-year yield moved to a 3-month high at 4.025% slightly above the YoY inflation level for the first time in long time. The US treasury did auction off $18B of 30 year bonds with strong demand from foreign buyers.

In the forex market, the GBP is ending the day as the strongest of the majors while the JPY is the runaway weakest. The USD was also mostly weaker despite the move higher in yields.

The GBP rose after better jobs data and hot wage data.

  • In May, payrolls saw a change of 23k, compared to a decrease of 135k previously, which was revised to a 7k increase.
  • The April ILO unemployment rate was reported at 3.8%, better than the expected 4.0%, and down from the previous 3.9%.
  • Employment change for April stood at 250k, outperforming the expected 162k, and up from the prior 182k.

In terms of earnings,

  • April’s average weekly earnings rose by 6.5%, higher than the expected 6.1% (3m/y) and up from the previously reported 5.8%, which was later revised to 6.1%.
  • Average weekly earnings excluding bonus for April were reported at 7.2%, higher than the expected 6.9% (3m/y) and up from the prior 6.7%, which was revised to 6.8%.

The data increases the likelihood of more BOE rate hikes ahead (they meet next week). With the US Fed likely on hold this month, that is good news for the GBPUSD.

The US stocks continued their run to the upside once again supported by chips, AI themes, and Tesla.

Tesla rose for the 13 consecutive day (up $8.88 or 3.55% to $258.71) to the highest level since September 30. There is a gap from $257.50 to $262.47 which was partially filled in trading today.

In the chip sector, even Intel rose today by 2.54%. Nvidia surged by $15.40 or 3.9% which took the capitalization back toward $1T.

A snapshot of the closing levels shows:

  • Dow up 0.43%
  • S&P up 0.69%
  • Nasdaq up 0.83%.

The S&P is up 4 consecutive weeks. The Nasdaq is working on its 8th consecutive week higher.

Tomorrow is the Fed meeting and announcement at 2 PM. With the expectations for a “skip” after raising rates for 10 consecutive meetings and 500 basis points, the focus will be on the dot plot (does it go higher again after remaining unchanged in March?), and the central tendencies. How does the Fed see GDP and inflation going forward?