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Could April inflation trigger USD longs?

Four markets in focus today: 10-year T-Note Decimalised, GBP/USD, Transfield and Seek.

10-year T-Note Decimalised (US 10-year bond)

Strong buying has been seen in the US bond space overnight, with price on the 10-year bond trading above good supply at 12,500. One could argue that price action alone we could see an extension to the 12,800 level, however in my opinion we will need to see a more prolonged sell-off in global equities for this to materialise. At 10:30am (AEST) today we get US CPI and while the Fed prefer to look at core PCE (private consumable expenditure), the market will always look at this data point for signs that inflation forces are increasing and thus the USD could be ready to move higher. On a headline basis, the market expects a 0.3% increase on the month and 2% on the year. Will this be the trigger for the start of better days for the USD and an about turn in US bonds?

GBP/USD

Cable has been the talked about currency pair overnight, with the pair falling to a low of 1.6753. Head of the BoE Mark Carney gave a more dovish assumption of how he sees the UK economy (relative to market expectations), however there were some modest tweaks to the banks forecasts for inflation, with its estimate for 2015 rising to 2.9% (from 2.7%) and 2016 to 2.8% (again from 2.7%). To be fair the inflation forecasts seem to be indicative of a bank that would be willing to raise interest rates between Q1 and Q2 2015, so this in itself should support sterling. Trend support drawn from the November low comes in at 1.6700, so moves here look like good buying opportunities in my opinion.

Transfield (TSE)

TSE was cut to ‘underperform’ by Credit Suisse yesterday after the 57% rally from the March lows. Certainly there is a lower risk premium being priced in after the A$475 million debt restructuring, however analysts are still cognisant that there are issues with its balance sheet that could cause concern for investors further down the line. TSE is also fairly priced and some would even say expensive relative to its peers on 8x 2015 EV/EBITDA. Still price action alone the trend is strong and long or neutral positions seem prudent right now.

Seek (SEK)

Today should be an interesting day for those who are long, with SEK breaking through the downtrend drawn from the March high yesterday. The leads for the ASX 200 aren’t great, so it will be interesting to see SEK breaks back below this former trend, or we see follow through buying, taking the stock towards the March high of $18.54.

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