Bullish Sentiment in the Markets

Daily Analysis - 15/02/2018

It’s all Happening in the US

The US Equities ended their 4^th winning day in a roar despite the rise in consumer prices. Crude Oil prices also rose while the US Dollar is losing momentum.

4-Day Winning Streak for the Markets

On Wednesday, in the premarket session the U.S. equities lost 150 points on the back of stronger-than-expected consumer prices while the dollar experienced gains.

The reaction was only seen as an instant reaction. U.S. consumer prices for January came out higher than forecasted as Americans paid more for gasoline, rental accommodation and healthcare, further raising inflation concerns and worries that the Federal Reserve may hike interest rates earlier than previously thought.

The surge in the U.S. shares on Wednesday marked a 4 – Day winning streak, with the Dow up 1% and the S&P 500 climbing 1.34%, as banks and tech carried major indexes higher. They rose despite a jump in bond yields.

The S&P 500 gained 1.3%, with financials and tech each rising more than 1.5%. Bank of America, J.P. Morgan Chase, Citigroup and Morgan Stanley all traded higher. S&P 500 also turned positive for 2018.

The NASDAQ Composite advanced 1.9% as shares of Facebook, Amazon, Netflix, Alphabet and Apple rose.

The VIX index - Wall Street’s “fear gauge” and a measure of market volatility - has declined below 20, less than half the 50-point peak touched last week.

Other data on Wednesday showed U.S. retail sales fell 0.3 percent in January to mark the biggest decline in 11 months. This was well below forecasts for an increase of 0.2 percent, suggesting slower growth could accompany higher inflation.

Nevertheless, the gains in the U.S. markets yesterday set global markets to trade higher on Thursday. Asian stocks rose on Thursday, while European stocks were set to also open higher, with Britain’s FTSE seen rising 0.5%, Germany’s DAX gaining 1% and France’s CAC advancing 0.8%.

Trend Reversal for Oil Prices

The mild and positive U.S. crude-inventory reading on Wednesday drove oil higher marking the biggest one-day gain in more than two months.

Crude prices climbed on Wednesday after the Energy Information Administration said U.S. inventories were just 1.8 million barrels in the week ended Feb. 9, coming in well under the 2.8 million-barrel forecasted by a survey of analysts by The Wall Street Journal. Prices were also supported by the weaker dollar and comments from Saudi Arabia that it would rather undersupply the market than end a deal with OPEC and Russia to withhold production.

U.S. West Texas Intermediate (WTI) crude futures climbed above the $60 level adding to a 2.4-percent gain from the day before.

Prices rose on the back of ongoing weakness in the U.S. dollar against other leading currencies, further supported by rising stock markets, traders said. A weaker greenback potentially increases consumption of dollar-denominated commodities as it makes fuel and raw materials cheaper for countries using other currencies.

Soaring production in the United States threatens to undermine OPEC-led effort to tighten markets which is not participating in the cut-deal.

U.S. crude oil production rose to a fresh record of 10.27 million barrels per day (bpd), more than top exporter Saudi Arabia pumps and within reach of No.1 producer Russia.

US Dollar Losing Ground

The dollar index against a basket of currencies slipped 0.3% to 88.879 after losing more than 0.6% overnight despite the strong inflation number.

The recovery in broader risk sentiment was seen weighing on the dollar, which had gained during the market turmoil earlier in the month.

The U.S. currency has been weighed down by a variety of factors this year, including concerns that Washington might pursue a weak dollar strategy and the perceived loss of its yield advantage as other countries start to scale back their monetary easing policies.

Concerns about the growing U.S. fiscal deficit have also played a major role. Trump’s budget proposal is still in focus. White House proposed $4.4 trillion budget that adds $7 trillion to the countries deficit.

The dollar stretched overnight losses against the Japanese yen to touch a 15-month low of 106.300, having declined more than 2% so far this week, causing the Japanese stock index, Nikkei 225, to underperform its global peers.