Dollar Struggles ahead of US CPI; European Stocks Bounce Up

Here are the latest developments in global markets:

FOREX: The dollar was struggling to pare today’s losses, after touching a more than a year-low of 106.83 versus the yen and reaching a one-week-low of 89.37 against a basket of major currencies earlier today. Dollar/yen crawled slowly up to 107.47 (-0.36%) and the dollar index recovered modestly towards 89.65 (-0.06%) ahead of the US CPI figures which have the potential to shake the currency. Meanwhile, the Japanese government argued during the Asian session that a "stable currency is important", signaling a potential intervention in the FX markets. Euro/dollar weakened to 1.2350 remaining flat on the day, unable to gain from encouraging GDP growth and industrial data out of the Eurozone. Pound/dollar stretched lower to 1.3846 as traders were expecting the UK Foreign Secretary and a Brexit-supporter, Boris Johnson, to use a speech to warn that an exit from the EU "provides ground for hope not fear". Euro/pound climbed to a one-month high of 0.8918. The Swedish krona gained ground versus the dollar after the Riksbank – Sweden’s central bank – hinted that rates will probably go up in the second half of 2018 but its cautious stance over the inflation outlook pushed the currency back down. The Riksbank kept benchmark rates steady as expected at -0.50%.

STOCKS: European stocks reversed yesterday’s downtrend after the Eurozone’s GDP growth figures and in particular Germany’s prints showed that the block was set to start the year with a strong foot, while positive earnings outcomes were also supportive. The pan-European STOXX 600 was up by 0.74% at 1030 GMT, with all sectors except energy being in the green. The blue-chip Euro STOXX 50 rose by 0.61%. The German DAX 30 jumped by 0.83%, lifted by gains mainly in utilities and technology, the French CAC 40 increased by 0.70% and the Spanish IBEX 35 climbed by 0.50%. The British FTSE 100 gained 0.67%, while the US stock futures were all pointing to a positive open.

COMMODITIES: Oil prices headed lower during early European trading as concerns of a potential US oversupply loomed in the background despite the Saudi Arabian Energy Minister saying that the country will cut its output and keep exports restricted in March. A weaker US dollar was also weighing on the market. WTI crude and Brent were down at $58.81/barrel (-0.60%) and $62.53/barrel (-0.30%) respectively at 1100 GMT. In precious metals, gold pulled back to $1,332/ounce but remained up on the day (+0.17).

Day ahead: US CPI figures awaited to make headlines; jittery stocks on edge

US data will dominate Wednesday’s economic calendar in the remainder of the day and particularly US consumer prices (CPI) are anticipated to attract the most attention as investors are eagerly looking for clues to justify their rising inflation expectations that triggered the recent turmoil in stock markets.

The CPI report delivered by the US Bureau of Labour Statistics at 1330 GMT is expected to be a significant clue on inflation as it is the first evidence on prices since the start of the stock market correction. The headline US CPI is forecasted to slow down from 2.1% to 1.9% y/y in January, whereas on a monthly basis the measure is expected to climb by 0.2 percentage points to 0.3%. Excluding food and energy, the core measure is said to inch down to 1.7% y/y from 1.8% seen in December. Although the Fed prefers to use the Personal Consumption Expenditure index (PCE) to adjust its monetary policy, any positive or negative CPI surprises could change the sentiment on the dollar during the day.

Monthly US retail sales, published along with the above data, could bring some volatility to the greenback as well. Forecasts are for retail sales to grow at a slower pace of 0.2% m/m in January compared to 0.4% in the preceding month, while core retail sales, which exclude automobiles, are anticipated to increase by 0.5% m/m, above the previous mark of 0.4%.

In other data out of the US, markets will see the release of business inventories at 1500 GMT and then focus on the EIA oil report at 1530 GMT. Analysts believe that the US crude oil inventories have risen by 2.825 million barrels in the week ending February 9, posting the third straight week of gains.

Before the day-end, Japan will publish December’s readings on core machinery orders at 2350 GMT. At midnight, Australian employment figures will also come into the light, probably showing that the employment change has narrowed even further in January, leaving the unemployment rate unaffected.

In stock markers, earnings releases will continue to be in the spotlight. Tripadvisor and Barrick Gold, the world’s biggest gold producer, will be among companies releasing quarterly results on Wednesday.