It has been a quiet day in terms of news flows as it seems that traders are looking ahead to tomorrow’s US CPI numbers. Stocks in Europe largely closed lower, the FTSE 100 is the outperformer of the bunch, as a rally in mining, oil and banking stocks helped the British index. The FTSE 250 is deemed to be a better reflation of the UK economy, and that market finished 1% lower. The mild tick up in US government bond yields has applied pressure to US stocks, in particular technology companies. Tech stocks have a track record of being the most sensitive to changes in the perceptions about interest rates hikes – which is connected to inflation. The latest US PPI reading jumped to 11.3%, which is not too far away from the record high. PPI measures prices at the manufacturing level, and if PPI is rising, that can often lead to higher prices for consumers. With that in mind, dealers are a little nervous ahead of the inflation report tomorrow. Last week, the robust US jobs report increased whispers the Fed might to do another 0.75% rate hike next month, so the CPI report will be closely watched.
Even though the US 10-year yield edged up to 2.79%, the US dollar index is in the red for the second day in a row. The solid US non-farm payrolls report sent the dollar to an eight-day high at the end of last week, but since then it has reversed most of the upward move witnessed as a reaction to the employment numbers. It is possible that traders are squaring up their books ahead of tomorrow’s inflation data, as there is a risk of high volatility.
Earlier today there were mild hopes the US, the EU and Iran could come to an agreement relating to Iran’s nuclear programme. The political back-and-forth is likely to run on for weeks or even months. Should Western governments come to an agreement with Iran, that could pave the way for an increase in oil production. WTI is trading around the $90.00 mark. Gold is in high demand as the slide in the greenback as well as the modest risk-off mood in the markets is assisting the yellow metal.