European Open: Bruised equity bulls look to US CPI for a reprieve

Asian Indices:

Australia's ASX 200 index fell by -14.6 points (-0.21%) and currently trades at 7,036.60
Japan's Nikkei 225 index has risen by 35.31 points (0.13%) and currently trades at 26,202.41
Hong Kong's Hang Seng index has risen by 337.49 points (1.72%) and currently trades at 19,971.18
China's A50 Index has risen by 208.5 points (1.6%) and currently trades at 13,254.06

UK and Europe:

UK's FTSE 100 futures are currently up 26.5 points (0.37%), the cash market is currently estimated to open at 7,269.72
Euro STOXX 50 futures are currently up 22 points (0.62%), the cash market is currently estimated to open at 3,576.80
Germany's DAX futures are currently up 50 points (0.37%), the cash market is currently estimated to open at 13,584.74

US Futures:

DJI futures are currently up 67 points (0.21%)
S&P 500 futures are currently up 95 points (0.77%)
Nasdaq 100 futures are currently up 14.5 points (0.36%)

US inflation is expected to soften today, which could generate a flurry of ‘peak inflation’ headlines should it do so tomorrow. And that could prove to be the ideal buying opportunity for bruised equity investors, who have had a hard time supporting markets during the latest rout.

Technically, it could be the ideal setup with the Nasdaq and S&P 500 clinging on to key support levels. And a soft(er) inflation report today would be the catalyst which catapults equities higher as bears flea for the exit and bargain hunters with larger pockets wade in.

But if we look at the bigger picture, it is still hard to believe peak inflation has actually arrived, even if we get a soft CPI print today. Prices for service and manufacturing companies continue to pay increasingly high prices, supply chains are still clogged, and China’s lockdowns and the Russia-Ukraine war are doing little to de-glogg them. But for today traders don’t really care about the bigger picture. They just want a quick fix, and a softer headline CPI would be just the ticket.

Of course, the counter scenario is inflation hits a new 40+ year high and equities begin their next leg lower. And that scneario should be factored in for correlated markets such as AUD/JPY.

FTSE: Market Internals

Today’s line in the sand is 7200. The FTSE held above it yesterday and printed a bullish inside candle to show bears were losing control. But now it is likely down to the CPI report as to whether prices will rally further from 7200 or simply break them lower.

FTSE 350: 4032.49 (0.37%) 10 May 2022

202 (57.71%) stocks advanced and 130 (37.14%) declined
1 stocks rose to a new 52-week high, 37 fell to new lows
20.57% of stocks closed above their 200-day average
17.71% of stocks closed above their 50-day average
3.71% of stocks closed above their 20-day average

Outperformers:

+ 5.91% - Genus PLC (GNS.L)
+ 5.58% - NCC Group PLC (NCCG.L)
+ 4.60% - Coats Group PLC (COA.L)

Underperformers:

-9.14% - Aston Martin Lagonda Global Holdings PLC (AML.L)
-3.47% - International Consolidated Airlines Group SA (ICAG.L)
-3.46% - John Wood Group PLC (WG.L)

AUD/JPY hovers around April’s low ahead of CPI

The correlation between US equities and AUD/JPY has been high recently due to the risk-off currents driving markets. This means we saw the Nasdaq hold key support yesterday whilst AUD/JPY also found support at a Fibonacci cluster and has since traded around the April low looking for its next directional cue.

If we see inflation soften enough today, markets could revert to risk-on to send Wall Street and the likes of AUD/JPY higher. The initial target for bulls could 91.0 and the 91.17 highs, whereas a break beneath the 90.31 intraday low suggests bears have regained control.

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