Friday's data added to the murky economic situation in the US. Retail sales and consumer confidence were both on the soft side but inflation expectations in the UMich report soared with the one-year measure at 4.6% compared to 3.5% expected. That's the highest since 2008.
It's especially notable because last week several Fed officials specifically highlighted that they were watching inflation expectations very closely.
At the same time, the bond market continues to exhibit calm. On Friday, US 10-year yields fell 2.9 bps to 1.63%. We see both side of the inflation argument and expect it to continue for many months before there's any clarity.
Ultimately though, it's incredibly difficult to bet against both the Fed and the bond market.
CFTC Commitments of TradersSpeculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +.
EUR +94K vs +85K prior GBP +28K vs +20K prior JPY -42K vs -41K prior CHF -3K vs 0K prior CAD +39K vs +26K prior AUD +2K vs +1K prior NZD +9K vs +9K prior
This is one of the larger one-week shifts in a year but it only encompasses the non-farm payrolls report, which was weak and USD-negative. The whipsaw from CPI likely unwound some of this month with some of those dollar sellers quickly finding themselves underwater. An ongoing trend in the past three weeks is aggressive CAD buying and given how strongly it bounced on Friday, expect more of that in the weeks ahead.
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