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Stocks are rising after US inflation cooled unexpectedly. US debt ceiling concerns remain.

US futures

Dow futures +0.52% at 33747

S&P futures +0.79% at 4152

Nasdaq futures +0.95% at 13324

In Europe

FTSE +0.23% at 7765

Dax +0.16% at 15868

US CPI unexpectedly cools to 4.9%

Bets the Fed could pause hikes, rise

Airbnb falls on disappointing Q2 outlook

Oil falls ahead of EIA data
 

CPI data gives Fed room to pause

US stocks are rising after losses yesterday and after US inflation data showed that consumer prices unexpectedly cooled in April.

Headline CPI cooled to 4.9% YoY last month, down from 5% in March. Expectations had been for inflation to hold steady at 5%. Meanwhile, core inflation ticked lower to 5.5% from 5.6% in line with expectations.

Inflation is still well above the Federal Reserve’s 2% target, even though the Fed has implemented one of its steepest hiking cycles in history from near 0% at the start of 2022 to current levels of 5-5.25% after a 25 basis point hike last week. However, the cooling in inflation does give the Fed room to consider a pause in the June meeting.

In the April meeting, Fed Chair Powell hinted that the central bank could pause rate hikes in the June meeting. Following the inflation data, the market has upwardly revised expectations of a pause in hikes in the June meeting to 85% from 78% prior to the data, and a rate cut in July to 36% from 29%.

The rebound in US futures and the drop in the USD reflects the re-pricing of Fed expectations.

Separately, the US debt ceiling impasse remains a big concern for investors as talks yesterday between President Biden and top congressional leaders resulted saw no progress. With around three weeks until the possible X-date, a US default on its debt obligations could result in unthinkable long term damage. The cost of insuring against default is now great than in some emerging markets.
 

Corporate news

Airbnb is falling pre-market despite posting record Q1 earnings. The holiday rental company posted net earnings of $117 million after a loss of $330 million in the same period last year. However, the Q2 outlook disappointed with fewer bookings and lower average daily rates.

Rivian rose 8.5% after the EV manufacturer beat quarterly revenue estimates after selling more high-priced vehicles and maintained its annual production forecast of 50,000.
 

Nasdaq100 outlook – technical analysis

The Nasdaq has broken out of the falling trend line support, and the RSI above 50 keeps buyers hopeful of further upside. Buyers have struggled at 13290 resistance, the May, with a rise above here needed to extend the bullish run. A break above here could open the door to 13725 the August high. On the flip side, support can be seen at 13165 the falling trendline support, with a break below here exposing the 20 sma at 13090. A break below 12950 creates a lower low and brings 12700 into play.
 

FX markets – USD falls EUR rises

The USD is falling after the inflation data, which supports a less hawkish Federal Reserve.

EUR/USD is rising on a weaker USD and after German inflation data confirmed that is cooled just slightly to 7.2% YoY from 7.4% in March. The data came after ECB Philip Lane warned that there was still momentum in price growth. Policymaker Isabel Schnabel also said that she sees rate hikes until core inflation declines too.

GBP/USD is rising to 1.2650 as the pound remains supported by a more upbeat stance towards the UK economy. The economy appears to be holding up better than expected with GDP, wage growth, and the service sector growing more than expected. The BoE is expected to hike rates on Thursday by 25 bps to 4.5%.

EUR/USD +0.22% at 1.0983

GBP/USD +0.25% at 1.2652
 

Oil falls ahead of EIA inventory data

Oil prices are falling for a second straight day after a surprise rise in inventories raises doubts over demand.

According to the latest API data, crude oil inventories rose by 3.6 million barrels in the week ending May 5, while gasoline stockpiles rose by 399k barrels. Analysts had expected a drawdown of 900k barrels of crude oil.

The data, along with lower crude imports and April’s export growth in China, is fueling concerns over the global oil demand.

The market will look ahead to OPEC’s monthly oil report, due to be released tomorrow, for clues on whether the group will be considering another output cut to prop up prices.

WTI crude trades -1% at $72.30

Brent trades at -0.96% at $76.12
 

Looking ahead

17:00 Fed Williams speech

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