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Dow jumps 1200 points as US inflation cools

 

Friday, November 11, 2022

The news shaping the markets today

Ukraine’s defence minister Oleksiy Reznikov said Russia would take at least a week to withdraw its military troops from the Kherson region. WTI crude oil futures traded higher this morning.


Japan’s producer prices climbed 9.1% year-over-year in October, following a 10.2% increase in the previous month. However, the latest reading came in above market estimates of 8.8%, exerting pressure on the JPY/USD forex pair.


New Zealand’s food prices rose 10.1% year-over-year in October, recording the highest annual rise since 2008, which sent the NZD/USD pair lower in forex trading this morning.


The Bank of Mexico raised its benchmark policy rate by 75bps to 10% at its latest meeting. However, the MXN/USD forex pair remained under pressure.


Ireland’s annual inflation rate accelerated to 9.2% in October, from 8.2% in the previous month, sending the EUR/USD pair lower in forex trading this morning.

 

What’s happening: US stocks recorded sharp gains on Thursday, following the release of inflation data.

What happened: Wall Street rallied in Thursday’s session after the latest inflation data showed signs of cooling in consumer prices in October.

While the Dow Jones index added 1,200 points, the S&P 500 notched its biggest percentage gain in several years.

Why it matters: The US Labor Department’s data signalled an easing of price pressures, with the annual inflation rate falling below the 8% mark for the first time in eight months.

The annual inflation rate fell for a fourth straight month to 7.7% in October, reaching the lowest level since January. The latest reading compared with September’s 8.2% and was below expert forecasts of 8%. The country’s CPI rose 0.4% but also came in below expectations of 0.6%.

Bearish sentiments have been dominating the US equity market so far this year, mainly due to rising concerns around a slowdown in the economy with the Federal Reserve’s efforts to ease inflation. The S&P 500 has lost around 18% year to date.

Traders adjusted their rate increase bets, with odds of a 50-basis-point hike increasing to 73.5%, compared to 52% before the release of inflation data.

US also released jobless claims data, which showed the number of persons filing new claims for unemployment benefits rising by 7,000 to 225,000 in the week ended November 5.

The CBOE volatility index, also known as the fear gauge, dipped to around a two-month low on Thursday.

Growth and tech-related shares drove the overall markets higher on Thursday, with shares of Microsoft and Apple gaining more than 8% each. Amazon’s stock jumped over 12% after reports of the ecommerce giant planning on measures to reduce overall costs.

The Dow Jones index jumped around 1,201 points, or 3.70%, to close at 33,715.37 on Thursday, while the S&P 500 added 5.54% to reach 3,956.37 and the Nasdaq 100 gained 7.49% to settle at 11,605.96. The S&P 500 recorded its biggest percentage jump since April 2020 on Thursday.

What to watch: Investors await the University of Michigan’s consumer sentiment data today, which is expected to edge lower to 59.3 in November, from 59.9 in October.

Markets will also keep an eye on statement from Fed officials around the next rate hike plans.

The markets today

The British pound will be in focus today ahead of a basket of economic reports

Context: The GBP/USD climbed to its highest level since September 13 on Thursday, following the release of US consumer price data.

Details: US consumer prices accelerated less than projected in October, which could result in the Federal Reserve slowing its pace of aggressive rate hikes.

The release of inflation data reinforced a sell-off in the US dollar. The US dollar index, which measures the greenback’s performance versus a basket of major rivals, fell more than 2% to 108.21 on Thursday.

The GBP/USD forex pair had recently tumbled to a record low, following the announcement of a mini budget in September by the then Prime Minister Liz Truss. The Bank of England had last week warned of the risk of recession lasting for two years.

The new Prime Minister Rishi Sunak’s government is gearing up to announce its first economic plan on November 17.

After falling 1.6% on Wednesday, the GBP/USD forex pair surged more than 3% to 1.1715 on Thursday, reaching its strongest level since September 13. Against the euro, the pound gained around 1.2% to 87.16 pence on Thursday, after declining 1% on Wednesday.

What are expectations: Traders await the release of economic reports on GDP, industrial production and balance of trade from the UK today. The British GDP, which expanded by 4.4% year-over-year in the second quarter, is expected to grow by 2.3% in the third quarter. Analysts expect industrial production to contract by 1% in September, following a 1.8% decline in the previous month. The UK trade deficit is expected to narrow to £6.8 billion in September, from £7.1 billion in August.

Other Markets: European trading indices closed higher on Thursday, with the FTSE 100, DAX 40, CAC 40 and STOXX Europe 600 up by 1.08%, 3.51%, 1.96% and 2.75%, respectively.

Support & resistances for today

Technical Levels News Sentiment
USD/JPY  – 141.72 and 142.14 Positive
USD/CAD – 1.3327 and 1.3338 Negative
EUR/GBP – 0.8721 and 0.8729 Positive
WTI Crude Oil  – 86.56 and 86.96 Positive
Copper – 3.8087 and 3.8452 Negative

Market snapshot

Futures at 0400 (GMT)
EUR/USD (1.0188, -0.21%) Dow ($33,734, 0.07%) Brent ($93.84, 0.2%)
GBP/USD (1.1676, -0.33%) S&P500 ($3,960, -0.03%) WTI ($86.71, 0.3%)
USD/JPY (142.05, 0.76%) Nasdaq ($11,628, -0.03%) Gold ($1,755, 0.1%)

What else to watch today

Germany’s consumer price inflation and current account, Turkey’s industrial production, current account and retail sales, UK’s goods trade balance, business investment, manufacturing production and construction orders, India’s foreign exchange reserves, manufacturing output and industrial production, Mexico’s industrial production, Brazil’s industry confidence indicator, as well as US Baker Hughes crude oil rigs.


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