Financial market research and analysis

Whilst the Dow and the S&P managed to break a two-day losing streak overnight, the Nasdaq slid for a fourth straight session. Its longest losing streak since November 2016.

Wall Street was generally on a firmer footing thanks to interest rate expectations easing slightly as treasury yields declined.  Yields slipped lower after St. Louis Fed President, Bullard expressed concerns over hiking rates to aggressively, causing indices to move higher, and the dollar to retreat. The impact of his comments was relatively short lived indicating it may have been overdone, as concerns over rate hikes lingered. The Dow and S&P closed well below their highs, whilst the dollar was seen gaining ground in the Asian session against a basket of currencies.

Energy stocks and financial in focus

Despite a weak lead from the US where interest rate jitters were still evident, Asia put in a solid performance with financials and energy stocks leading the charge. A mixed start is expected in Europe, with oil majors potentially offering some support to the FTSE as oil 

continues to gain ground overnight. Financials will also be under the spotlight, however the extent of support that the FTSE receives from the sector is likely to be determined by the tone set by RBS as it releases its results.

Euro to finish the week higher on CPI data?

The ECB minutes from the January meeting, showed that ECB policy makers were still concerned over the bloc’s stagnant inflation. The ECB monetary policy makers agreed that patience was needed as inflation remained weak and that it was premature to adjust the forward guidance.

Today CPI data for the eurozone will be released. Expectations are for inflation to dip lower in January, to -0.9% on a month on month basis, falling from 0.4% in December. On an annual basis inflation for the bloc is forecast to dip to 1.3%, unchanged from its previous reading and down from December’s 1.4%. Meanwhile, core inflation, which excludes more volatile items such as food and fuel, is expected to remain constant at 1%.

Given the ongoing concerns of stagnant inflation at the ECB, despite a buoyant economy, we can expect the CPI update to be closely watched.

Potential Market Reaction:

EUR/USD rose 0.39% in the previous session, supported by dollar weakness. Should today’s data show a continued softening in inflation EUR/USD could give up Thursday’s gains and look to retest $1.23. A surprise to the upside could see the euro look to finish the week in positive territory targeting $1.24.

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