A look at the day ahead from Danilo Masoni.
The return of the 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 were disappointed.
April's hot consumer price data left 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.
After an initial kneejerk plunge, the fall of the headline figure to below the 40 year peak gave some comfort to world stocks, already flirting with bear market territory. The Nasdaq fell over 3%, its worst five-day drop since March 2020. Asian shares absorbed the pain with a 2.5% drop to almost 2 year lows and European equity index futures are pointing to an ugly day ahead.
The risk of a recession reversed the spike in Treasury yields, which are now set to fall further this morning while the dollar has rocketed to a new 20 year peak. Wall Street's fear gauge is above 30 for a fifth day in a row.
Finance ministers and central bank governors from Japan, China, and South Korea warned of the risks to Asia's economic recovery from the COVID 19 pandemic and early interest rate rises in some advanced nations Oil too is down. The market for cryptocurrencies is in a meltdown mode with the so-called stable coin TerraUSD collapsing and the price of the currency falls below $27,000 to give up its 2021 gains.
Positive soundings from the earnings season in Europe may do little to save the day. The profit growth is north of 40%, up from around 20% forecast two months ago, according to Refinitiv I B E S data.