Charts of the Week: Stubborn Inflation, Wavering Dollar Longs, and Rising Oil Demand
- By Matthew Tibble
- 6 min read
Summary
- US inflation: it shows no sign of fading, increasing the chances of an interest rate hike in June.
- The US dollar: large investors are reducing their long dollar positions as debt ceiling X-date approaches.
- Oil demand: estimates of oil demand growth are rising, expected to peak in H2.
US Inflation Expectations Are Creeping Up
Since the May Fed meeting, strong growth and inflation data together with FOMC comments have shown a June hike is not off the cards. Bloomberg consensus expectations of inflation are rising, while FOMC members generally see no decisive evidence that inflation trends are reverting to the 2% target (Charts 1 and 2).
Investor Positioning Turns Less Bullish on the US Dollar
The debt ceiling remains critical to the direction of the dollar: the currency may weaken should concerns of a crisis escalate. Having been in the largest USD net-longs since early September, hedge funds have pared recent additions to their positions (Chart 3). Meanwhile, real money investors kept USD positioning largely unchanged last week, yet they are trending less bullish on the greenback this year (Chart 4).
Estimates of Oil Demand Are Rising
Global demand growth for 2023 continues to be revised higher. All three parties revised their outlook for global demand higher versus last month, the IEA by most (Chart 5). Yet expectations of demand growth are tilted towards H2. Both the IEA and OPEC expect global oil demand in Q4 to breach 103mn b/d, driven by Chinese demand (Chart 6). We find that a supply deficit remains the most likely outcome in H2, supporting our bullish view.
