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Pound Softer Ahead of Mark Carney In The Hot Seat

Optimism over the US – China trade truce sent US stocks sharply higher overnight with industrials leading the charge. Supported by the likes of General Electric, Boeing and Caterpillar, the Dow charged through 25,000 for the first time since March, whilst the S&P and Nasdaq closed 0.7% % and 0.5 % higher respectively.

 

Whilst relations between US and China have shown signs of progress, the same cannot be said for Iran US relations. Iran flatly refusing the “very basic requirements” put forward by the US is raising tensions in the middle east and weighed on sentiment in Asia overnight; Asian stocks are lower, and Europe is pointing to a mixed start.

 

Dollar Pauses On Dovish Fed speak

The dollar initially climbed higher in the previous session, also boosted by easing US – Chinese tensions, before unexpectedly dovish comments from Fed speaker Harker put breaks on the recent dollar rally, giving a dose of reality to runaway interest rate expectations. Harker’s belief that there are no signs of a rapid acceleration in inflation or even a precursor to it, sent treasury yields lower, whilst pulling the dollar from 94.05, its highest-level year to date, back to 93.50.

 

Will BoE Carney and CPI Send Pound Down To $1.33?

The weaker dollar gave cable a respite, with the pound picking up from session lows of $1.339, back above $1.343. Over the past few sessions a lack of influential data has left the pound vulnerable to Brexit uncertainties and dollar strength; today the economic calendar starts to fill up with BoE Governor Mark Carney taking the hot seat before the Treasury Select Committee for a grilling on the May Inflation Report. The dovish report downgraded both inflation and GDP outlooks for the coming years, removing pressure from the BoE to hike rates in an aggressive fashion. Given the dovish nature of the Inflation report it wouldn’t be surprising to hear more dovish language from the BoE Governor, Carney. There may also be some questions raised about Carney’s latest ‘switcheroo’ in forward guidance. Expectations of a rate hike went from almost fully baked in to nearly completely priced out in the 2 weeks leading up to the last Bank of England decision.

 

Hot on the heels of Carny’s appearance, CPI figures are due on Wednesday. Whilst the headline number is expected to have remained constant at 2.5%, the core CPI is forecast to have dropped further, from 2.3% in March to 2.2% in April. Currently the markets are pricing in a 40% probability of an August hike by the BoE, should these odds drop following a dovish Carney and weak inflation reading, the pound could find itself targeting $1.33 before it even considers the GDP release on Friday.

 

Euro Could Struggle Following Italian Coalition’s PM Candidate Proposal

The euro capitalised on the weaker dollar, rebounding off fresh monthly lows before heading towards its first daily gain in 5 days. Any gains in the euro are likely to be limited, as Italian politics remain a clear headwind. Concerns have been rife that the new Eurosceptic, populist coalition will tear up the EU rule book, potentially putting Italy’s membership to the bloc at risk. The coalition’s choice of PM candidate Giuseppe Conte has also caused some fright, given his lack of political experience. As a result, the Italian bond market and equities traded lower again on Monday.

 

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The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest and nothing herein should be construed as investment advice. The information provided is believed to be accurate at the date the information is produced. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Please note that 79 % of our retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing money.

17-7-2019

UK CPI seen steady despite higher wages
It happened again.US President Donald Trump spoiled the expectations of a US – China trade deal yet again, after he said he could impose more tariffs on Chinese goods, claiming that Beijing pledged but didn’t increase purchases of US farm products following th… Read more

16-7-2019

Nasdaq hits record, eyes on US earnings
Both stocks and bonds extend rally in the US, as the earnings season kicks off.Monday was Nasdaq’s turn to hit a record high, as technology stocks led gains in the US session. The S&P500 consolidated near its historical high as well, though energy (-0.93%)… Read more

15-7-2019

US earnings in focus, as China slows
The week started with undecided risk sentiment on mixed Chinese data.Chinese equities began the week on a negative note, after the data showed that China’s GDP grew 1.6% in the second quarter, a touch better than 1.5% penciled in by analysts and up from 1.4% p… Read more

12-7-2019

Dow at record, oil up on Hurricane Barry
The US stocks went to the moon and back as the Federal Reserve (Fed) Governor Jerome Powell strongly hinted that an interest rate cut is imminent at his semiannual testimony before the congress. The global economic slowdown outweighs the good data in the US, a… Read more

11-7-2019

Powell spurs bets of 50bp cut in July
The US dollar gave back gains on a sharp move after the Federal Reserve (Fed) Governor Jerome Powell has been very clear that the global economic slowdown outweighs the encouraging data in the US at his speech before the congress on Wednesday. Powell’s testimo… Read more

10-7-2019

UK won’t suspend Parliament, GBP down
The US dollar consolidates gains as Federal Reserve (Fed) Governor Jerome Powell prepares to deliver his semiannual testimony before the House Financial Community at 10am today and he is expected to keep the possibility of an interest rate cut on the table des… Read more

9-7-2019

Stocks fall ahead of Powell’s testimony
Markets trade on a mixed risk sentiment.The US dollar extended gains against most G10 currencies, as investors scaled down their dovish Federal Reserve (Fed) expectations following a solid US jobs report in June. The US equities edged lower and the futures ext… Read more

8-7-2019

USD jumps on solid jobs data, lira falls
The US dollar rallied and the 10-year yield jumped to 2.0390%, as the solid US jobs report released the dovish pressure on the Federal Reserve (Fed) on Friday. Data showed that the US economy added 224’000 nonfarm jobs in June, well above the 160’000 expected … Read more
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