What you need to know on Wednesday, May 12:
Tensions mounted as the focus is on US inflation data to be out on Wednesday. Higher commodities prices send the Chinese Producer Price Index sharply up in April, spurring concerns about rising inflationary pressures in the US. The US Federal Reserve has maintained an ultra-loose monetary policy and clarified that higher inflation levels would likely be temporal and won’t twist its policy. Nevertheless, investors are concerned that the Fed may have to act sooner than wanted. US inflation is expected to have increased by 3.6% YoY in April
Stocks plummeted, with most global indexes ending the day in the red, while government bond yields ticked higher. The yield on the 10-year US Treasury note finished the day at 1.62%.
Meanwhile, the US Labor Department showed that local employers posted a record number of available jobs in March. Jobs openings rose 8.12 million in the month. Investors had second thoughts about the “terrible” Nonfarm Payroll report, attributing the poor numbers to companies being unable to find the workers they need, instead of blaming it on a lack of jobs.
The American dollar remained under selling pressure, ending the day with uneven losses against its major rivals. The EUR/USD pair trades around 1.2150, while GBP/USD added to recent gains and settled at 1.4150. The USD/JPY pair retested the 108.30 area bouncing just modestly ahead of the close.
Gold fell intraday but trimmed most of its losses ahead of Wall Street close, hovering around 1,837 at the end of the day. Crude oil prices started the day falling, but closed with gains, with WTI at around $ 65.30 a barrel.
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Another sign of the good health of the US economy came in response to firm flash US Manufacturing and Services PMIs, which in turn reinforced further the already strong performance of the US Dollar, relegating EUR/USD to the 1.0400 neighbourhood on Friday.
GBP/USD remains depressed near 1.2520 on stronger Dollar
Poor results from the UK docket kept the British pound on the back foot on Thursday, hovering around the low-1.2500s in a context of generalized weakness in the risk-linked galaxy vs. another outstanding day in the Greenback.
Gold keeps the bid bias unchanged near $2,700
Persistent safe haven demand continues to prop up the march north in Gold prices so far on Friday, hitting new two-week tops past the key $2,700 mark per troy ounce despite extra strength in the Greenback and mixed US yields.
Geopolitics back on the radar
Rising tensions between Russia and Ukraine caused renewed unease in the markets this week. Putin signed an amendment to Russian nuclear doctrine, which allows Russia to use nuclear weapons for retaliating against strikes carried out with conventional weapons.
Eurozone PMI sounds the alarm about growth once more
The composite PMI dropped from 50 to 48.1, once more stressing growth concerns for the eurozone. Hard data has actually come in better than expected recently – so ahead of the December meeting, the ECB has to figure out whether this is the PMI crying wolf or whether it should take this signal seriously. We think it’s the latter.
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