Financial market research and analysis

The UK wages growth surprised on the upside, as the British households saw their average earnings improved by 2.1% (3 month-on-year) versus 1.8% anticipated by analysts. Still, consumer prices rose by 2.6% over the same month. Although, the divergence between the price and wages growth will likely continue weighing on British households’ purchasing power and cool down the inflationary pressures, the Bank of England (BoE) hawks will remain alert on the economic data as long as the rates remain at the historical low levels. This reasoning should limit the downside potential in the pound markets, without however encouraging a positive breakout in the short-term.

The pound-bulls came back in charge following the solid wages growth. Support could strengthen at 1.2847 level (major 61.8% retrace on June – August rise) and prevent the daily MACD (Moving Average Convergence Divergence (26, 13, 9) on LCG Trader) from deepening.

The FTSE 100 stocks take advantage of a softer pound. The 7400p level has been surpassed at the London open.

IT (+1.31%) and mining stocks (+1.83%) were the major driver of gains and the energy (+0.56%) were better bid as the WTI crude gained past 0.60% on expectation that the EIA data could reinforce oil buyers’ appetite later in the session.


EIA to reveal 7th consecutive week decline in US stockpiles

The US oil inventories contracted by 9.2 million barrel last week, as revealed by the API data. The more official EIA data is expected to print 3 million barrels fall in last week's stockpiles versus 6.5 million barrel contraction printed a week earlier. Provided the solid decline announced by the API, the possibility of a second straight week surprise is a plausible upside risk for oil traders at today’s session.

The market has been building long WTI crude futures positions since July, though the rising trend has been stagnating since last week. Failure to pick-up momentum on a hypothetically oil-positive data could be an early sign of a further unwind approaching the critical $50 level.

The fundamental traders need more commitment from the OPEC countries to drain the global supply glut. Resistance is eyed at $48.10 (100-day moving average). More offers are presumed into $49.70 (200-day moving average) and $50/barrel.


USD better bid, US stocks quiet as investors rush to corporate debt

The greenback pared losses after the US retail sales data beat estimates in July and the August Empire Manufacturing index printed 25.2, versus 10.0 expected by analysts.

Traders stood shy of the US equities. The Dow Jones (+0.02%), the S&P500 (-0.05%) and the NASDAQ (-0.11%) were left out of the stock rally that has started in Asia on Tuesday, weakened in Europe and faded into the US session. Instead, the rush to corporate bonds continued. Amazon and Apple issued $16 billion and $1.96 billion debt respectively.

The Dow is called 45 points higher at $22’044 at the open.


FOMC minutes to reveal little detail on issues that matter

The US 10-year yield advanced to 2.27% before the Federal Reserve (Fed) meeting minutes release today. Although the hawkish comments from the Fed’s Dudley have been supported by yesterday's solid economic data, there will certainly be no fireworks at the time of the FOMC minutes release in New York today. The FOMC has stayed pat at its latest meeting and has refrained from giving away pertinent details regarding the portfolio normalisation plans. September meeting is still considered as a reasonable time to start unwinding the $4.47bn balance sheet. The probability of a December rate hike is up to 43.8%, yet comfortably far from being taken into consideration seriously at the moment.

Meanwhile, the US President Donald Trump signed an executive order on Tuesday to speed up approvals for infrastructure projects across the country. The markets gave little reaction to the news that could potentially be detrimental for the environment. Either way, the decline in Trump’s credibility refrained traders from pricing in the impact of higher government spending on rates, but the bull market in the equity and the corporate bonds complex remains impressively tight.


Gold, yen give back gains

Improved US yields are pressuring the gold prices on the downside. The price of an ounce hovers around the $1’270 level. The key support to the July – August positive trend is eyed at $1’260. Any softness in the US dollar could revive the appetite in the yellow metal and encourage a recovery to the critical yearly resistance area of $1’290/1’295, which has been tested three times over the last four months.

The USDJPY is testing the 110.93 resistance (major 38.2% retrace on July – August decline). Surpassing this critical Fibonacci barrier, the pair would step into the short-term bullish consolidation zone and could extend gains to 111.61 (50% retrace) and 112.30 (major 61.8% retrace).


Euro-bulls seeking the dip

The EURUSD’s early attempt to 1.1758 rapidly found sellers despite encouraging Italian growth data. The preliminary data showed that the Italian GDP grew at a faster pace of 0.4% in the second quarter, up from 0.2% printed earlier and in line with analyst estimates. Likewise Germany which has posted its best performance since 2012, the Italian economy grew at the highest pace of 1.5% year-on-year since 2011 on working-day-adjusted basis.

As expected, the Eurozone 2Q preliminary growth came in at 0.6% quarter-on-quarter, unchanged from the previous read. The year-on-year seasonally adjusted GDP advanced to 2.2% from 2.1% expected and printed previously.

The euro is on a rising trend against the greenback since April. The net long futures positions stand at the highest levels since more than a decade – the sentiment is positive as the European Central Bank (ECB) is expected to reveal its Quantitative Easing (QE) exit plans, as the program comes to an end in September. The economic data is supportive of a hawkish move.

Combined with a gradually less hawkish Fed, traders will likely seek interesting dip-buying opportunities before the ECB meeting minutes release due Thursday. The 1.20 level is still on radar. The 1.1680 level provided a temporary ground to recent price pullbacks. The key supports to the April- August positive trend stand at 1.1581 (minor 23.6% retrace on April – Aug rise) and 1.1388 (major 38.2% retrace).

Against the pound, the single currency advanced to a 10-month high (0.9133). The 3-month, 25-delta, euro-pound risk reversals are steady, yet in favour of a stronger euro as the divergence between the ECB and the BoE policy outlooks will likely widen toward the end of this year. Investors are hedging the downside risks in the pound market.