Inflation is in focus

Inflation is in focus

Last week ended with a market session in which upward pressure on US bond yields resumed

After two days in which the bullish momentum stopped and underwent some corrections, the American 10-year Tnote bond yield reached 1.35%. The forecasts of most analysts and investment banks reports continue to point to higher yields for the end of the year. For the 10-year bond, it is expected an increase to 1.75% and even more.

On Friday, Federal Reserve member, Mester, reiterated her previous statements regarding the reduction of bond purchases, which, from her point of view, should begin between now and the end of the year.

Economic metrics and inflation

In addition to the unemployment rate decrease, currently the main objective of the Fed's monetary policy, and which fell to 5.2% in August, the talks about inflation are starting to heat up. At the moment, inflation does not show signs of abating, and it will undoubtedly be a factor of concern for the Fed. Still, they consider it a transitory phenomenon.

The reality is that all the price figures published continue to rise, as was the case with the August PPI released on Friday. It reached an interannual level of 8.3%, the highest value in more than ten years.

The market met the release of the PPI figures with falls in stock indices and a strengthening of the US Dollar. This is further evidence that people are beginning to be more sensitive to the issue of inflation. Therefore, the Consumer Price Index figures released tomorrow will be closely analyzed by investors and traders.

After a week of continuous losses, the S&P500 index ended the week right at the support level around 4460. A close below this level would anticipate a downward trend that would find the next support around 4360.

To this downward movement, not only the S&P500 but also the Nasdaq contributed to some extent. The fall of Apple share price after a court ruling forced it to use external payment links in compliance with the anti-trust law added fuel to the fire.Gráfico, Gráfico de líneasDescripción generada automáticamente

The US Dollar

The dollar strengthened slightly against its counterparts, and thus the EUR/USD pair could not advance above the highs reached after a corrective movement on the day that reached 1.1850. It fell again following the PPI figure release, ending the day close to the support around 1.1800. Below this support, it makes its way to the 1.1750 and 1.1660 areas. The ECB's determination to maintain its expansionary monetary policy while reducing the special pandemic asset purchase program to counter the COVID-19's impact also contributes to the euro's weakness.Interfaz de usuario gráfica, GráficoDescripción generada automáticamente

Sources: Bloomberg.com, reuters.com

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