Overall inflationary pressures in the US are easing, but core inflation remains high

The US Consumer Price Index declined from 6% to 5% year-on-year. Core inflation (excluding food and energy prices) rose from 5.5% to 5.6% y/y, with the Index adding 0.4% for the month. This data disappointed investors as the key inflation indicator shows no signs of slowing down, which increases the likelihood of another interest rate hike by the Fed. CME FedWatch Tool shows a 68% probability that the Fed will raise the interest rate by 0.25% at the May meeting. Comments from FOMC officials diverge. San Francisco Fed President Mary Daly pointed out that the Fed needs to keep raising interest rates, with another Fed official, Harker, indicating that the Central Bank may no longer need to raise interest rates monthly as overall inflation in the US is falling. The factory inflation (PPI) report will be released today, which will give more information on inflationary pressures.

The minutes of the Federal Reserve’s March meeting showed that policymakers are concerned about a mild recession this year. Although the Central Bank is likely to pause the interest rate hike cycle in the near future, a subsequent slowdown in economic growth could be a bad omen.

The slowdown in US inflation is shifting investor focus to the reporting season. Investors believe a strong corporate reporting season may be needed for a decisive rise in equities. The upcoming reporting season begins on April 14 with the release of results from major Wall Street banks, including JPMorgan Chase (JPM), Citigroup Inc (C), and Wells Fargo (WFC), which investors will be scrutinizing to gauge the impact of last month’s banking crisis.

The Bank of Canada left interest rates unchanged for the second consecutive meeting. The central bank kept the interest rate at 4.5%, in line with economists’ expectations. But the door for further rises remains open and further policy will depend on the next inflation and GDP data. BoC chief Maclem indicated at a press conference that the governing council discussed the likelihood of rates remaining in restrictive territory for a longer period in order to curb inflation.

ECB spokesman and head of the Austrian Central Bank, Robert Holzmann, believes that the ECB needs to raise the interest rate by 0.5% in May. However, other ECB policymakers are in favor of a 0.25% increase. Before the May meeting, the Eurozone will publish another inflation report, which is likely to tell which move Europe’s Central Bank will choose. If core inflation shows no signs of slowing, the ECB will be more decisive.

Gold strengthened its position in the $2000 territory on Wednesday, hitting another peak. Despite a mixed US inflation report, government bond yields fell yesterday. Gold and silver are inversely correlated to US bond yields.

Asian markets traded flat yesterday. Japan’s Nikkei 225 (JP225) was up by 0.57%, China’s FTSE China A50 (CHA50) decreased by 0.58%, Hong Kong’s Hang Seng (HK50) was down by 0.86%, India’s NIFTY 50 (IND50) added 0.51%, Australia’s S&P/ASX 200 (AU200) closed positive by 0.47%.

Bank of Japan Governor Ueda indicated yesterday that he wants to take the first step towards closer relations with “peers.” By peers, he means the other global central banks. Thus, there is a growing probability that the BoJ will start to move toward monetary policy normalization in the near future. The Japanese yen is strengthening amid such rumors.