News & Analysis

Equity markets rally as inflation fears take a hit; BOE rate hold turns the GBP; USD breaks lower after CPI shock

May 10, 2018 | Daily Market Outlook

Upcoming high impact news:

22:30 CAD Employment ChangeUnemployment Rate
23:15 EUR ECB President Draghi Speaks

US markets – rallied further on Thursday as CPI data calmed some fears. “Inflation is gradually rising, but it’s less likely to feed into the volatility we’ve seen recently,” said Mike Bailey, director of research at FBB Capital Partners. “I also think investors are looking at valuations and realize they are pretty reasonable.” CPI came in at 0.2% and Core CPI hit 0.1%. These figures were below expectations and showed more stable inflation that had been feared was actually occurring. Stocks drove higher off the unexpected data, tech sector adding 1.3%.

As of Thursday, market expectations for rate hikes in June and September are 100 percent and 76 percent, respectively, according to the CME Group’s FedWatch tool. This is in line with the Fed’s interest-rate projections released in March when the central bank last raised rates.

The Dow Jones added 196.99 – The S&P500 added 25.28 – The NASDAQ added 65.07

European markets – closed mainly higher on Thursday with positive leads from the US. The key release during the session was from the Bank of England, as expected they held interest rates at 0.50%. Telecoms stocks were among those to lead the losses, down 0.94 percent amid earnings news. Media stocks rose 0.3 percent on average. RBS rallied nearly 4 percent after it agreed to pay a smaller-than-anticipated $4.9 billion to resolve a long-running investigation into its sale of mortgage-backed securities.

Italy – The yield on Italian government 10-year bonds rose to a seven-week high Thursday, while stocks sold off, following news that former Prime Minister Silvio Berlusconi will not stand in the way of a new coalition government. The anti-establishment Five Star (M5S) and right-wing Lega parties are said to be closing in on an agreement to form a ruling coalition for the euro zone’s third-largest economy.

Oil – continued to tick higher hitting further multi-year highs, price touching 71.78. Sellers did build during the session price had ended up forming a spinner candle. Traders adjusted to the prospects of renewed U.S. sanctions against Iran amid an already tightening market. In China, which is Iran’s single biggest buyer of oil, Shanghai crude futures posted their biggest intra-day rally since their launch in March. Venezuela’s crude production slipping further and with bullish drawdowns in U.S. crude inventories support prices. Price settled at 71.32

Forex – last night’s key drivers where the BOE rate hold and CPI miss. The USD took more than a breather after CPI data missed expectations, risk made strong gains. The AUDUSD added 80 pips. The GBP fell sharply after rates were held and Bank of England left key borrowing costs unchanged but reduced its growth and inflation outlook for 2018 and 2019. That was the real nail that sent the sterling lower, despite a flatlining USD. The GBPUSD lost 28 pips and the GBPJPY lost 80 pips. Gold jumped to the USD adding $8.70 breaking back above 1321.

Gold – confirmed a trend break last night are buyers now starting a new leg higher?

Good trading from Eightcap.

Sources; CNBC  All times are AEST

* The information provided here has been prepared by EightCap’s team of analysts. All expressions of opinion are subject to change without notice. Any opinions made may be personal to the author and do not reflect the opinions of EightCap.

In addition to the disclaimer on our website, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. EightCap accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication.

Please note that past performance is not a guarantee of or prediction of future performance. This communication must not be reproduced or further distributed without prior permission.