UK CPI rates accelerate more than expected

The UK’s CPI rates came in hotter than expected, which could provide support for the sterling.

MORNING OVERVIEW

The UK’s inflation print came in hotter than expected, implying a greater acceleration of inflation pressures in the UK economy than what was expected by economists. In combination with the employment report, it could increase calls for a BoE rate hike.

MARKET SNAPSHOT

KEY MARKET THEMES

01 — UK inflation accelerates

The inflation print tends to imply an acceleration of inflationary pressures within the UK economy, which combined with their labour report could increase BoE rate hike expectations. Specifically, an acceleration of the headline CPI rate for 3.5% from 3.1% in the prior rate may increase concerns that the bank may need to act in order to bring inflation under control. Thus, the possibility of a more hawkish BoE could in turn provide support for the sterling.

Market implication (GBP): Bullish

02 — Oil prices remain high as supply chain worries continue

Risks to the global oil supply have remained with the IRCG starting on Tuesday that naval mines had prevented three tankers attempting to pass through the Strait of Hormuz. Specifically, “Two violating oil tankers were set ablaze and halted due to the explosion of mines planted by the brave sailors of the IRGC Navy at an illegal crossing point in the southern part of the Strait of Hormuz”. Moreover, with the strikes from the Houthi Rebel’s on Saudi Aramco’s oil facilities on Monday, oil prices may remain elevated.

Market implication (OIL): Bullish

03 — US Futures Rise Ahead of Major Tech Earnings

US stock futures edged higher early Wednesday as investors assessed the latest wave of corporate earnings. SpaceX and Netflix both reported better-than-expected revenue and earnings per share (EPS), supporting market sentiment. Attention now turns to earnings from Meta Platforms, Tesla and IBM, with stronger-than-expected results potentially providing further support for US equities.

Market implication (US500) : Bullish

WHAT MATTERS TODAY

ECB Lagarde speech

Time GMT+2): 19:00

Expected: N/A
Previous: N/A

Potential market reaction:
N/A

ASSET FOCUS

[OIL , Commodities]

Oil prices for the day appear to be moving in a upwards fashion for today. Overall, we would opt for a bullish outlook for the commodity’s price and supporting our case is the RSI indicator below our chart, which currently registers a figure close to 70, implying a bullish market sentiment, as well as our MACD indicator. For our bullish outlook to be maintained, we would require a break above our 99.30 (R1) resistance level, with the next possible target for the bulls being our 105.60 (R2) resistance line. On the other hand, for a sideways bias, we would require the commodity’s price to remain confined between our 91.25 (S1) support level and our 99.30 (R1) resistance line. Lastly, for a bearish outlook, we would require a break below our 91.25 (S1) support level, with the next possible target for the bears being the 84.75 (S2) support line.

KEY LEVELS

• Resistance (R1): 99.30
• Resistance (R2): 105.60
• Support (S1): 91.25
• Support (S2): 84.75

Technical View: Bullish

CROSS-ASSET VIEW

TRADING SPHERE VIEW

Bearish for EUR

Our base case:
We wouldn’t be surprised to see political instability in France continuing, as the situation continues to develop following the riots in France over the weekend. Moreover, France’s borrowing debt has continued to grow, which could spell trouble for one of Europe’s largest economies

What would change our view:
A budget proposal being passed.

RISKS TO THE VIEW

Contagion effect resulting in France’s fiscal ambitions being pushed back

France is currently facing a variety of issues, including concerns over its economy, which may weigh on the EUR in the future.

TODAY’S WATCHLIST

01 ECB Lagarde’s speech

DISCLAIMER: This content is for general informational and educational purposes only and should not be considered investment advice or investment recommendation.