German Consumer Prices Hit New Multi-Year High

Daily Analysis - 14/03/2017

DAX Searching for Direction After German Inflation Data

In a sign of the growing progress of constituent fundamentals, the Euro Area received another dose of optimistic news in the form of German inflation which managed to top expectations. Although the German DAX 30 equity benchmark has come under pressure since the announcement, the index remains above the 12,000 psychological level.

German Inflation Advances to Fastest Pace in Over Four Years

Germany's annualized headline inflation jumped to its highest point since August of 2012, jumping to 2.20% in February according to figures reported by Federal Statistics Office Destatis earlier. Harmonised to compare with other Euro Area countries, consumer prices gained by 0.70% on a month over month basis.

It was the first time since September of 2012 that annual inflation broke above the European Central Bank's price stability target of just under 2.00%. On a non-harmonised basis, February CPI rose by 0.60% from January and increased by 2.20% from the same period a year ago. The predominant drivers of these gains were energy prices climbing 7.20% year over year while prices of goods rose by 3.20% and food prices increased by 4.40%. After trending higher following the weekly reopening, DAX 30 futures for June are currently correcting lower, trading around 12000.

Australian Business Confidence Slips

Business confidence in Australia slid in February, largely driven by deteriorating sentiment in the key services sector per the latest business survey conducted by major local lender National Australia Bank. NAB’s business confidence indicator came in at 7 for last month, versus January’s reading of 10.

Meanwhile, business conditions fared even worse, dropping from the 16 recorded in January to 9 in February. NAB further warned that the longer-term growth outlook was concerning given that the benefits from the temporarily high commodity prices and the housing boom will eventually fade, placing severe pressure on the labor market. Adding to the anxiety is lowered growth expectations from China, with the 6.50% spurring fears that commodity prices may once again retreat. The AUDUSD pair fell to as low as 0.7550 in the immediate aftermath of the report, remaining below the level as the European session approaches.

Silver Sees Corrective Bounce

Silver prices are trading modestly higher on Tuesday around the $16.950-mark as speculators continue to cover their shorts after the metal hit multi-week lows on Friday. Holdings of the world’s largest silver-backed ETF, iShares Silver Trust SLV, stood at 10,268 tonnes, unchanged from the prior session. Investors will be focusing on the two-day meeting of the US Federal Reserve’s Open Market Committee that begins later in the session.

With financial markets already factoring in a 0.25% hike in the benchmark rate, all eyes will be on Federal Reserve Chair Janet Yellen’s press conference for fresh clues as to the pace of rate increases in the coming months. Silver reversed from the strong resistance around $17.110, while on the downside, support should come in at $16.830.

Natural Gas Prices Gain as US Northeast Braces for Blizzard

After opening higher before falling on Monday, natural gas prices are up in early Tuesday trade following a US National Weather Service warning that a massive blizzard is likely to strike the East Coast during the morning hours. The most recent selloff has reversed substantially, with gas prices rallying since the middle of last week after the US Energy Department's weekly inventory data revealed a greater-than-expected drawdown in natural gas supplies.

Stockpiles held in US storage declined by 68 billion cubic feet for the week ending March 3rd, much higher the average analysts’ estimate of 58 BCF. Inventories have been shrinking for fifteen-straight weeks after hitting an all-time high in November, further adding to the bullish undertone in the market. Natural gas is currently perched around $3.037, off last session’s lows of $2.990.