Financial market research and analysis

Energy Rally Lifts Wall Street

A fifth straight positive close for the Dow suggests that traders are not expecting a huge fallout from Trump quitting the Iran nuclear pact. Risk on was firmly in play as Wall Street booked further gains overnight, boosted by a jump in energy stocks tracing the price of oil higher, financials and technology stocks.

Oil continued to rally for a second straight session following Trump’s announcement on Tuesday and his promise of powerful new sanctions on Iran, expected to target the country’s oil industry, tightening global supply. News that US crude stock piles also fell by more than expected gave traders another reason to buy into oil, sending crude to an overnight high of $71.50 per barrel and Brent to $77.50 per barrel (at the time of writing).

Heavyweight oil stocks lifted the FTSE in the previous session, pushing it to a three-month high. With oil on the rise once again overnight, oil majors such as BP and Shell could be in for another bumper day today. The pound could potentially cap the FTSE’s rally, should the Bank of England point towards a hawkish hold.

Hawkish hold from BoE to send GBP/USD to $1.36?

The pound has traded flat versus the dollar in the previous session and overnight as investors await the BoE’s super Thursday. No change in policy is expected, meaning that what the BoE says rather than does will drive trading in the pound. As long as the central bank keeps a rate hike on the table, potentially for August, then the pound could stage a recovery back towards $1.36.

US Inflation to stoke expectations of 4 rate rises?

The dollar paused for breath, trading close to 93.1 versus a basket of currencies for much of the previous session. The dollar pulled back from a fresh 5 month high of 93.4 in response to a subdued PPI report, causing investors to scale back their expectations for today’s CPI release. Whilst the CPI report is not the Fed’s preferred measure of inflation it will still be closely watched.

CPI is expected to reach its highest level since February 2017 at 2.5% in April, up from 2.4% the month previous. Core inflation, which excludes more volatile items such as food and fuel is expected to tick up to 2.2% from 2.1% in March. A surprise to the upside could stoke expectations for four rate hikes across the year, which would push the dollar higher along on its impressive rally. However, with the lower than forecast PPI, CPI could struggle to hit forecasts, weighed down by falling input prices. This scenario could leave the dollar vulnerable to profit taking ahead of the weekend.

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