- Wall Street extends climb out of January pit, but futures ease as CPI data awaited
- Dollar edges sideways as traders seek direction from US price growth
- Gold hits two-week high amid uncertainty about inflation and Fed policy
The improved risk tone is holding ahead of the all-important inflation numbers out of the United States later on Thursday. Stocks on Wall Street jumped higher for a second day on Wednesday, erasing the losses from late last week when markets were roiled from surging bond yields.
The rally in yields appears to be cooling and this is aiding the rebound in equities, which are proving to be surprisingly resilient given that nothing has changed since January when it comes to the monetary policy landscape. If anything, the panic should have intensified after the European Central Bank joined its peers in flagging a possible rate rise later this year.
However, investors were likely relieved when the ascent in the 10-year Treasury yield stopped just shy of the 2.0% level. Combined with the growing sentiment that the robust corporate earnings that equity traders have become accustomed to over the past several quarters are not under immediate threat, there is hope yet for the bull market.
The generally upbeat earnings are keeping Wall Street afloat and European earnings have been impressive too. Disney was the latest to report stellar Q4 results yesterday, with its stock soaring even before the earnings announcement that came after the market close.
The S&P 500 closed up 0.9% and the Nasdaq Composite rallied 2%. Their futures were last trading slightly in negative territory, though stocks in Europe and Asia were mostly higher.
The caution could increase in the run up to the inflation prints, which are expected to show America’s consumer price index hitting a fresh 40-year peak of 7.3%.
Gold climbs, dollar flat as all eyes on US CPI
A lot is riding on today’s CPI report as the Fed has become very data dependent and there is huge uncertainty around what path the federal funds rate will follow over the next year or two. Fed officials seem mostly opposed to hiking rates by 50 basis points in March but what happens after that is unclear. If there’s any sign in the numbers that inflation is peaking or is close to, Treasury yields could significantly pull back from their current elevated levels, weighing on the US dollar.
The dollar index is consolidating this week as investors weigh the varying price dynamics in each region. If inflation peaks in the US before other countries, that could dampen the greenback’s outlook in the short- to-medium term.
However, uncertainty about how much central banks will have to tighten has never been greater as the inflation picture is extremely foggy right now. This uncertainty could be what’s been driving gold higher lately as the precious metal is scaling a two-week top today.
The price of bullion appears to be testing familiar resistance in the $1,830/oz region. Whether it’s able to break above that barrier will likely depend on how strong the CPI data is.
Modest gains for euro and pound
The euro has also been stuck in a tight range this week as rate hike calls from the ECB’s more hawkish members have overshadowed President Lagarde’s more tempered tone on policy normalization.
The single currency was last trading around $1.1435. Sterling was firmer despite the Bank of England’s chief economist, Huw Pill, calling for a “steady handed approach” to raising rates.
Higher commodities help aussie and kiwi maintain rebound
The Australian and New Zealand dollars were both extending their February upswing on Thursday, tracking the broader improvement in risk appetite.
Higher commodity prices have been bolstering the aussie and kiwi lately, with copper futures surging in the last two sessions. Oil prices, meanwhile, were steadier, edging slightly higher after finding support from the surprise drawdown in US crude oil inventories in yesterday’s weekly report. However, any upside is likely to be weak as investors are waiting to see whether there’s any prospect of Iranian sanctions being lifted should there be a deal with the West on Tehran’s nuclear program.
