Stocks had a great day yesterday as traders were pleased with the state of relations between the US and China. It was reported that the Chinese government are making it easier for foreign companies to gain access to their market. This is seen as a concession from the Chinese government as they have been careful about allowing international firms to access to their country. The Beijing authorities like to keep a bit of a closed shop. The US was seen to make a concession too. As President Trump claimed he will involve himself in the Huawei case, if it were to help with trade negotiations.
The CFO of Huawei is alleged to have broken US sanctions in relation to Iran, but it goes to show you that President Trump is willing to put ‘America First’ at any cost. By the end of the US session, the major indices posted modest gains. The upbeat sentiment continued overnight as the Asian markets posted gains of between 1.05% and 1.5%.
US CPI cooled to 2.2% from 2.5% and the core CPI edged up to 2.2% from 2.1%. This was a very similar situation to Tuesday, when the headline PPI fell, but the core reading ticked up. The major fall in the oil market is likely to be the reason behind the divergence in both the CPI and PPI reports. Ultimately, the core reading are going up, and that points to increased demand.
Sterling soared yesterday against the US dollar and the euro as traders widely predicted that Theresa May would withstand the leadership contest. The pound retreated slightly after it was confirmed that Mrs May won the vote. Now that it has been confirmed she will remain the party leader, she can get on with her attempts to obtain some leeway from the EU.
Gold has experienced low volatility in recent weeks, but broadly speaking it was been pushing higher. The relatively soft US dollar has made it more attractive, and the prospect of a less aggressive Fed in 2019 is helping too.
Oil was popped up by falling US stockpiles and the optimism surrounding China. According to the energy information administration, US oil inventories fell by 1.2 million barrels. Its second-consecutive week of falling inventories, against a backdrop of previously rising stockpiles.
The eurozone will be in focus today as Germany and France will announce their inflation reports at 7am (UK time) and 7.45am (UK time) respectively. The German report is tipped go come in at 2.2% and the French reading is also expected to come in at 2.2%.
The European Central Bank (ECB) will announce its interest rate decision at 12:45pm (UK time) and the press conference will follow at 13:30pm (UK time). No change is expected on the interest rate. The ECB are keen to wind down their stimulus package this year, so traders will be listening out for that update. The regions has been going through an economic malaise recently, so the outlook might reflect that.
EUR/USD – has been diving lower since late September and if it holds below the 1.1510/00 region, it could pave the way for the 1.1215 area to be retested. A move to the upside could run into resistance at 1.1533 – the 100-day moving average.
GBP/USD – has been broadly pushing lower since September, but yesterday’s daily candle formed a bullish engulfing so might see a move back toward 1.3000. Another move lower might bring 1.2365 into play.
EUR/GBP – We saw a bearish engulfing on the daily chart yesterday which might see it back to the 200-day moving average at 0.8838. If the wider rally continues, it might target 0.9100.
USD/JPY – the upward trend that began in March is still intact, and if the positive move continues it might target 114.73. Support might be found at 111.39.
FTSE 100 is expected to open 4 points lower at 6,876
DAX is expected to open 13 points higher at 10,942
CAC 40 is expected to open 3 points higher at 4,912
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