Fundamental analytics

January inflation exceeded expectations, retail sales disappointed, volatility increased

Futures for US indices fell sharply, anticipating a negative Wall-Street start after the expected statistics showed that consumer prices in January in the US rose more than expected in the consensus forecast, in January, while core inflation showed the largest increase in a year.

These strategic data reinforce risks that US interest rates will grow faster than expected, which will lead to increased yields on fixed-risk securities (US government bonds) and undermining investor interest in medium- and long-term positions in stocks.

In addition, published data on US retail sales. As it turned out, the decline in retail sales in January was the biggest monthly decline in almost a year, and this, in turn, fueled fears that the economy was not at the peak of economic expansion in order to reliably digest the increase in interest payments on loans.

In this sense, expected data turned out to be mixed and so far USD dollar reacts to them only by increased volatility. At the first minutes after the publication of statistics, the US dollar moved to strengthen against the major currencies - the European currency, the British pound and the Japanese yen. We will see whether the dollar will be able to reverse the trend of recent days to weaken with the today's trading session close.

As we expected the output of these statistics led to a sharp increase in volatility, VIX volatility index, known as the fear indicator of the stock markets, rose above 25 points. The index fell to a weekly low around 22 at Tuesday, while last week's local maximum was around 50 points.

In the oil market, although the situation did not change dramatically, it did not deteriorate much. Brent oil is above the main support - the level of $61 per barrel.

Yesterday, the threat from the producers of shale oil was admitted by IEA as well. The agency stated that oil production in the US in 2018 would grow at a faster pace than the demand for it confirming the fears of investors. The agency noted that the current situation is very similar to the one that occurred in 2014, when a sharp increase in supply from shale oil producers collapsed oil market to multi-year lows.

Today data published by the American Petroleum Institute did not reassure investors. Data noted an increase in the level of reserves by almost 4 million barrels, with a forecast of 2.8 million barrels. At the same time, the dynamics of growth is also maintained in respect of gasoline stocks, +4.6 million barrels. All this data only exacerbates investors' expectations regarding the report of the US Department of Energy, which will be published tonight. If the data of the Ministry of Energy confirms the API trends, oil market will be extremely difficult to hold on the current level.


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