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U.S. CPI, TerraUSD De-Pegged, Disney Earnings - What's Moving Markets

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By Geoffrey Smith

Investing.com -- The U.S. will publish inflation numbers for April to a world desperate for some signs that the surge in U.S. prices has peaked. Stablecoin TerraUSD is still in trouble, as is Coinbase (NASDAQ:COIN) stock after a weak quarter for crypto trading. Stocks are set to open higher, though, reassured that hikes of 75 basis points in U.S. interest rates seem only a remote possibility. Walt Disney (NYSE:DIS) reports after the bell. Oil rises as Shanghai reports no new COVID cases, while the war in Ukraine disrupts Europe's gas flows for the first time. Here's what you need to know in financial markets on Wednesday, 11th May.

1. U.S. CPI data may show whether March was the peak

The headline rate of U.S. inflation is expected to have eased in April, as last year’s surge in prices for used cars starts to pass out of the year-on-year calculations.

If the consensus forecast of a drop to 8.1% from 8.5% in March is confirmed at 8:30 AM ET (1230 GMT), then there may be some much-needed relief in bond and equity markets. However, the more important numbers will arguably be the month-on-month rises, where core CPI growth is expected to accelerate to 0.4% from 0.3%. A sharp slowdown to 0.2% from 1.2% is expected in the overall CPI due to a modest drop in energy prices after March's spike.

A battery of speeches from Federal Reserve officials on Tuesday suggested that the Fed isn’t currently minded to put 75 basis point rate hikes back on the table, although Cleveland’s Loretta Mester did warn that one should “never say never”.

Others drew attention to the fact that Fed action is already taking the heat out of the housing market, something that weekly mortgage application numbers (due at 07:00 AM ET) should underline.

2. TerraUSD slumps as rescue plan fails to gain traction

The TerraUSD stablecoin and the Luna token languished overnight as a rescue plan launched by Do Kwon and other creators of the coin’s underlying blockchain failed to restore confidence in the assets.

By 6:30 AM ET, the TerraUSD stablecoin was trading at just over 49c, a full two days after its peg to the dollar effectively broke. However, that was still up from an intraday low of 27c.

Kwon sketched out some measures for restoring the peg on Twitter (NYSE:TWTR) within the last hour. However, he conceded that redemption pressures were likely to remain strong in the immediate future.

Kwon and the Luna Foundation Guard – a group of crypto investors – have lent around $1.5 billion in the form of Bitcoin and dollars to the market-makers who usually keep the peg stable. Whether that will be enough to meet the total redemption demand is not clear.

In contrast to Tether and USD Coin, the only two larger stablecoin projects, TerraUSD is only backed by an algorithm.

3. Stocks set to open higher; Toyota, Coinbase disappoint; Disney eyed

U.S. stock markets are set to open higher, albeit in a holding pattern ahead of the CPI numbers, after finding at least a short-term bottom on Tuesday.

By 6:15 AM ET, Dow Jones futures were up 238 points, or 0.8%, while S&P 500 Futures were up 0.9% and Nasdaq 100 futures were up 1.1%.

Stocks likely to be in focus include Coinbase, which fell 12% after hours on Tuesday after disappointing results. Comments by SEC head Gary Gensler accusing crypto exchanges of trading against their customers are unlikely to help sentiment toward the stock. Also in focus will be Toyota (TYO:7203), set to hit a two-month low after detailing a raft of COVID-related plant closures, and Electronic Arts (NASDAQ:EA), which held up well amid the general weakness in tech this quarter.

Early reporters Wednesday include Fiverr, Perrigo, Krispy Kreme, and Wendy’s. Walt Disney gets top billing after the bell.

4. House approves $40 billion Ukraine deal

The House of Representatives approved a $40 billion aid package for Ukraine, but the bill faces delay in the Senate due to complaints of a lack of detail and concerns that it may be tied to another bill funding COVID-19 measures.

The package includes some $18.7 billion in military aid, equivalent to around a quarter of Russia’s entire defense budget last year.

Meanwhile In Ukraine itself, the flow of natural gas to Europe fell after pipeline operator Naftogaz accused Russian entities in the occupied parts of eastern Ukraine of illegally siphoning gas destined for others. European natural gas prices spiked at the open but quickly reversed. The longer-term question of how to replace Russian gas this winter remains unanswered, however.

5 Oil rises on signs of COVID hope from Shanghai

Crude oil prices rebounded after health authorities in China reported that half of Shanghai had no new cases of COVID-19 on Tuesday, bringing an end to a two-month lockdown closer. Shanghai’s problems have radiated out into the economies of surrounding regions, triggering a sharp drop in Chinese oil demand in recent weeks.

By 6:30 AM ET, U.S. crude futures were up 3.3% at $103.06 a barrel, while Brent crude was up 3.1% at $105.64.

The U.S. publishes official inventory estimates at 10:30 AM ET. The American Petroleum Institute’s figures had shown an unexpected rise of 823,000 barrels in crude stockpiles, adding to evidence that record-high prices for gasoline and diesel are hurting demand.

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