Strong US Inflation and soft retail makes the dollar weak
Saudi oil ministers fuelled the bull rally once again
Precious metal looks strong from technical perspective
European markets and US futures are staring the day on a positive note as investors have shrugged off the concerns that the Fed would adopt any aggressive stance towards their monetary policy. The inflation data released over in the US was hot and it was better than the forecast. The text book trade, higher dollar on the back of better inflation number, wasn’t able to last long as investors started to factor in other aspects.
The US CPI number released yesterday printed the reading of 2.1% against the forecast of 1.9%. The signal that rising ISM prices could have an impact on the CPI number, did filter through and stamp of that was all over the reading. However, what saved the day for investors was the retail sales number which came below the forecast.
A soft retail number simply gives the message that consumers have started to ease off from their spending or they are not digging deep into their pockets. A sensible approach would be that the Fed isn’t going to increase the interest rate when they can clearly see that the retail data was soft. However, one factor which has become acute after the dust settled from yesterday’s economic reading is that the March interest rate hike is pretty much a done deal. Again, it only looks like that it is a done deal for now, because if we get a soft readings from the US NFP, the game could change.
As for the commodity market, comments from the Saudi oil ministers fuelled the bull rally once again. Saudi Arabia clearly has a more interest in keeping the oil price higher than any other country right now because of its gigantic IPO of Armco. The Saudi oil minister made traders happy by announcing that Saudi Arabia prefers an undersupplied oil market and it is not likely that the country would turn its back to keep the production down. The dollar weakness is another reason that we are seeing the recovery in the commodity metal today.
Precious metal looks strong from technical perspective especially when you pull up the daily chart. The precious metal is holding steady on Thursday thanks to the US data. The inflation data hasn’t changed the matrix and there is no change in the odds for the Fed to increase the interest much faster than previously thought. Gold is using its both plays; inflation hedge and safe haven. Higher inflation calls for an inflation hedge trade and aggressive stance adopted by the Fed for their monetary policy triggers the safe haven trade. So it is more of a win and win scenario.
