Marketmind: Still too hot

A look at the day ahead from Danilo Masoni.

The return of U.S. inflation to more bearable levels is not going to happen overnight so those who were hoping for a clear signal that price pressures had peaked got disappointed.

April‘s hot consumer price data did leave bets of aggressive Fed tightening broadly intact and with them the spectre that a hard landing for the world’s top economy may become unavoidable.

The fall of the headline figure to below the 40year peak did provide some comfort, helping world stocks, already flirting with bear market territory, regain some footing after an initial kneejerk plunge. But that bounce was shortlived.

The Nasdaq fell over 3, logging its worst fiveday drop since March 2020. Asian shares absorbed the pain with a 2.5 drop to almost 2year lows and European equity index futures are pointing to an ugly day ahead.

The risk of a recession also reversed the spike in Treasury yields which now look set to fall further this morning while the only winner appears to be the dollar which has rocketed to a new 20year peak. A Wall Street fear gauge is above 30 for a fifth consecutive day.

Meantime, finance ministers and central bank governors from Japan, China and South Korea warned of risks to Asias economic recovery from the COVID19 pandemic and from early interest rate rises “in some advanced nations”.

Oil too is down. Cryptocurrency markets are in meltdown mode with socalled stablecoin TerraUSD collapsing and Bitcoin falling below 27,000 to give up its 2021 gains.

Positive soundings from the earnings season in Europe may do little to save the day. Analysts now see profit growth north of 40, up from around 20 forecast two months ago, per Refinitiv IBES data.