After yesterday's ECB upward revision, US CPI disappointed investors.
While after softening in April, many believed that it peaked and probably we can see some decline in May, consumer price index in May rose more than expectations.
The US consumer price index rose by 1.0% Monthly to increase the annual headline rate of inflation to a new 40-year record of 8.6%. Both Monthly and Annual Scales beat the expectations of 0.7 and 8.3%. Price increase in goods and services excluding energy and food also rose by more than expected on a monthly scale, but on the annual scale, it eased to 6% from 6.2% in April.
On Thursday, the European Central Bank announced that the Policymakers expect inflation to be 6.8% in 2022, 3.5% in 2023, and 2.1% in 2024 in the next three years.
The number on both sides of the Atlantic tells us that the worst is still to come!
After today's published data and yesterday's ECB meeting, yields in benchmark 10-years bonds reached 3.14% in the US, 1.49% in Germany, 3.75% in Italy, 2.42% in the UK, and 0.25% in Japan. US dollar index also breathed above 104 Mark, while the Gold's safe-haven demand also increased the yellow metal price by $10 above 1,860 US dollars.
With the highest seen inflation since 1981, stock markets also fell sharply, scaring of stagflation. The Dow Jones Industrial Average fell
by 2.2%, the S&P 500 fell 2.5%, and the NASDAQ Composite lost 3.3%. With the current trend, Wall Street will close lower for the 10th week out of 11.
Next week FED will hold its monetary policy meeting, and investors have already priced in a 50 bps rate hike. We know that FOMC members are trying to tame inflation without tipping the economy into a recession. However, last week's improving employment data and today's inflation can change the mind and cause an aggressive reaction.
As mentioned above, ND100 has the worst reaction to the data. From the technical point of view, also it moves in a clear downtrend with 10,000 USD as the next target. However, if next week's FED announcement and decisions would not aggressive, this scenario would be canceled, and the decline should be with a much lower slope. 11,500 is the first resistance. Technical indicators remain bearish. MACD's histogram forms under 0-level. Price moves under 20 DMA (12,322) with a stable market volume. Therefore, technically we are still waiting to see lower numbers.
