The US CPI report hasn't come yet but we are seeing markets start to turn around a fair bit on the session now.
The dollar is falling further across the board with bond yields tracking lower while equities are gaining some solid ground on the day. 10-year Treasury yields are down 5.3 bps to 2.94% while S&P 500 futures are up 42 points or 1.1% to 4,038 currently.
It's a shake out of the recent market moves but it also fits with a couple of narratives perhaps, most notably that of 'peak inflation' and one that sees markets reverse course the April action. But some other potential narratives to consider are:
- Markets have fully priced in Fed hawkishness and is fearing today's inflation report will justify that the move in the rates market has maxed out already
- The deleveraging pressure is cooling off, perhaps with a key data release in the offing
There's no straightforward answer just yet but we'll get a better sense once the US CPI report has been digested.
For now, the dollar is coming under some modest pressure with USD/JPY falling back below 130.00, USD/CAD back below 1.3000, and AUD/USD inching slightly above 0.7000.
