US and European futures are trading higher, and traders are ready to pick up where they left off yesterday. Yesterday, Wall Street took a U-turn on the back of the news that the UK could be finally putting its house in order and that the country may be scrapping some other parts of the budget. The news has changed the sentiment in the market and made traders forget about the US CPI number which confirmed yesterday that CPI in the US is not losing its momentum that easily. The US CPI number was hot and it will take quite some time to cool off.
Today, the main focus will be on the US Retail Sales number; many traders believe that the data provides the most naked form of investor confidence. There is no doubt that higher interest rates and soaring inflation has pushed consumers into the corner, and this leaves a small window open for any optimism around the US retail numbers. However, if the data shows that consumers are bold and they are investing, we are highly likely to see a strong rally for the US market.
After a roller-coaster week that saw the Pound plummet a couple of days ago, the Sterling has gained strength once again. The main reason that we have seen bulls coming back in the market is mainly the fact the current government, which has its reputation completely torn, didn’t think things through. Now, the government is taking steps back in relation to its fiscal policy, and it has started to scrap parts of the budget; the Sterling has started to recover.
One important thing to keep in mind in relation to the Sterling is that the Bank of England will be pulling out its support today and this means that the bond market will be left alone. Now, a real test will begin and if the yield on gilts remains stable, we could see even more recovery in the British Pound.
Philip Lane, Chief Economist of the European Central Bank, said that policymakers would continue to raise interest rates for “many” more sessions as they normalise monetary policy in the eurozone. He made this statement yesterday at a conference that was co-hosted by the Cleveland Federal Reserve and the European Central Bank. He was referring to the level of interest rates that neither sped up nor slowed down the economy. “We’re definitely still below neutral,” he remarked. “We have a clear vision that we need to do more normalisation, but it’s going to take numerous sessions to achieve it,” he added, “because I do believe it’s vital not to overdo it in one or two meetings.”
The typical safe haven, gold, has been out of look this week as the main focus has been on the strength of the dollar index. The latest US CPI number has certainly increased the odds that the Fed is more likely to increase the interest rate more aggressively. The expectations were that we continue to see inflation readings cooling off but now the circumstances have changed. The odds are as high as they can that the Fed will increase the interest rate by 75 basis points during their next meeting.
Today, gold traders are also going to keep an eye on the US Retail Sales data. A strong number is likely to push the gold price lower, and this is because traders will believe that the Fed will increase the interest rates in the next two upcoming meetings by 75 basis points—something which is not fully priced in yet.
Brent and Crude oil prices are on track to record their first weekly loss in nearly two weeks. Traders are still very much digesting the message from the US Crude inventory data which confirmed that supply is on the rise in the US. Remember, the US has one path to go if it wants to increase oil supply without worrying about what OPEC+ is doing and that is ramping up the oil supply in the country.
The tensions between the US and OPEC+ especially with Saudi Arabia, are still intense and this is something that oil traders are very much worried about. If these tensions do not ease off, there is a serious threat that this could lead to a supply war and under that case, the US could lose the game by a large margin.
BTC’s price has been adversely influenced due to the strength in the dollar index. Yesterday, we saw the BTC price plunging on the back of the US CPI number, but bulls have been quick to jump on this opportunity and now the price of BTC is pretty much at the same level where it was before the CPI data. This shows two things: firstly, bulls are very active in defending the support. Secondly, we know that the correlation with risk on assets is still very much on as the BTC price moved higher in tandem with the equity market.