Yesterday, Europe made another attempt to return to the recovery phase and this time it was a successful one (DAX: + 1.2%, CAC40: + 1.1%), amid an upward correction of the oil market and a rally in US stock indices from session lows. The expected statistics on inflation figures initially puzzled the markets, being mixed, but was later interpreted in favor of interest in risky assets. More on that later. As a result of Wednesday Saint Valentine session, US indices, despite the increased volatility at the beginning of the session, showed steady growth (S & P500: + 1.3%, Dow: + 1.1%, NASDAQ: + 1.9%).
The statistics released yesterday proved to be ambiguous: the initial and generally nervous reaction of the market to statistical data was in favor of USD currency gains. Data showed growing inflationary pressures in the country, the consumer price index from the previous 0.2% rose to 0.5%. The yield of US bonds rose immediately after the release of the data block. It would seem that the data went in the direction of USD dollar strengthening. However, the dollar ended gains very quickly. Whether the strengthening of the dollar was due to the work of high-speed news robots, or the market just traditionally collected stop-loss orders before a powerful impulse, it does not matter now. It is important that the dollar upward impulse was quickly broken and the dollar came under strong pressure, losing all the gains of the previous days. The dollar index DX returned to the levels of 88 points, these are four weeks lows. In addition, the reason for this was the basic index of consumer inflation, as well as the second portion of yesterday's data.
The fact is that in making its decisions, the Fed primarily focuses on the basic consumer price index, which, unlike the conventional CPI does not take into account changes in prices for gasoline and food. The target inflation rate of 2% is just the basic CPI, which according to the data provided yesterday, remained at 1.8% year-on-year, while the figure for January rose from 0.2% to 0.3%.
In other words, the basic CPI, which the Fed considers the most, reflects only a moderate increase in inflationary pressures in the country and, if we analyze the data more carefully, it is clear that the growth in the month was mainly due to factors that do not exert long-term upward pressure on inflation.
In addition, yesterday, retail sales data were presented. The data disappointed market participants as well. The volume of retail sales for the month unexpectedly fell from the previous + 0.4% to -0.3%.
yesterday there was a significant change in the situation on the market - USD dollar fell under significant pressure, but the further dynamics for equity markets in volatile conditions preserves some risks. Today the focus of the markets will be on the second portion of the most important statistics - data on industrial production in the US, in addition, in Asia, the Lunar New Year starts, which will be the beginning of the long weekend in Asia. We can expect some decrease in trading activity in currency and stock markets.