Financial market research and analysis

The avoidance of a US government shutdown, in addition to improved prospects of a US - China trade deal boosted Wall Street overnight. The Dow surged over 370 points, whilst the S&P climbed 1.3%. Positivity spilled across to Asia where stocks edged up to a 4-month high on Wednesday. European bourses are pointing to a strong start.

Trump saying that there could be some leeway with the March 1st trade truce deadline if the two sides were close to a deal was music to the ears of the market. Whilst there have been positive reports regarding the trade talks investors were getting nervous of the nearing deadline and no solid evidence of progress.  Negative sentiment is unwinding, and investors are showing that they are prepared to put risk back on the table. For sentiment to remain positive we will need to see evidence of a deal in March. However, for now markets are willing to let this pass.

Flows out of safe haven yen

Stocks were also on the front foot after a partial government shutdown was averted. A tentative deal on border security was not to Trump’s liking but the President also downplayed the likelihood of a second shutdown. With this headwind moving quickly into the rear-view mirror investors are moving their money out of safe havens and back into riskier assets. The dollar was broadly lower, except versus the haven yen which climbed over 110.50. The dollar is inline for its fourth consecutive day of gains versus the yen.

Dollar eases on improved risk sentiment & ahead of CPI

On Tuesday the dollar snapped an 8 day winning streak, falling 0.4% versus a basket of currencies. The dollar is once again falling in early trade on Wednesday as investors look ahead to US inflation data. Headline CPI is expected to have declined to 1.5% year on year in January, down from 1.9% the month previous. This would be the fourth consecutive month of falls. With the focus on geopolitical developments January CPI is likely to take a back seat to other drivers. A fall in line with expectation is therefore unlikely to cause any fireworks. Should we see a surprise to the downside, pressure on the dollar could ramp up quickly.

UK CPI figures are also due for release this morning. Inflation is expected to dip from 2.1% to 2% in January. Whilst inflation remaining at or around 2% is good news for the pound, the reality is that Brexit is driving sterling right now. Inflation data is likely to play second fiddle to Brexit headlines.

Oil extends gains

Oil was trading 1% higher in early on Wednesday, extending gains from the previous session. With OPEC confirming deep cuts in January and Saudi Arabia cutting above and beyond its agreed OPEC quota, oil bears are happy. Throw into the mix the US sanctions on Venezuela and suddenly supply is looking considerably tighter.

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