UK And German Data

UK unemployment and wage numbers have brought more adverse news for the Bank of England. The number has shown that both wage growth and inflation are running much hotter than expected and this means that the Bank of England will have to announce more rate hikes.

In the UK, it is mainly about the cost of living crisis and the interest rate hike cycle. Today’s labour market data has given more information about the UK’s economic health and confirmed that the situation is only getting worse. The average earnings index (3 m/y) is an important piece of information, and it has shown that the Bank of England has more wood to chop—the number has ticked higher. At the same time, something that was widely expected in the headline unemployment number has also finally shown up, and that is that the unemployment rate has ticked higher to 4.0%.

The German CPI number has shown no change, which means inflation continues to remain sticky in nature, and this also means that the ECB has a lot more to do than what it is currently doing. The German CPI m/m number remained at 0.3% and confirmed no sign of improvement.

More German Data

Market players are going to remain laser-focused in Germany as the German ZEW Economic Sentiment data will be released at 10:00 a.m. BST. The number has shown that it has a negative trend—something that shows that the German economy is on the wrong path. Today, the expectations are further picking up in this adverse trend; the forecast for this number is to come in at -10.7, while the previous reading was at -8.5.

It is important to mention here that Germany is considered the economic engine of the Eurozone, and any slowdown in the German economy has detrimental consequences for the rest of Europe. It is believed that the European Central Bank is less concerned about economic activity in the eurozone as it wants to tame inflation under all circumstances. But the fact that the German ZEW Economic Sentiment reading is at -10.7 is actually a big deal, and we think that this only pushes the ECB one step closer to creating deflation in the region.

Over in the US, the focus continues to remain on tomorrow’s US inflation data. It is in this essence that the move in the 2-year Treasury yield is highly important. Currently, they indicate that the Fed has every single reason to hike interest rates this year. Yesterday, we heard more hawkish comments from another member of the Fed, who clearly stated that market players should not expect anything less than a few more rate hikes from the Fed.

In the currency market space, the dollar index continues to pick up more strength, and it is highly possible that if the inflation number doesn’t ease off significantly tomorrow, we may see further higher moves in the dollar. However, we do believe that there may not be any immediate interest rate hike by the Fed as they may continue to practise their policy stance that they did in the last meeting.

US Stock Market

In terms of market sector momentum, we continue to see more strength coming in the industrial, healthcare, and energy stocks, while communication services and utilities are experiencing some challenging signs. But we continue to hold our view that the US stock market remains on good footing and that there are stronger chances that the market will continue to move higher for the remaining year. The information technology and communication services sectors of the S&P 500 remain the strongest

Oil Prices

In the oil market, traders continue to remain nervous about weakness in oil demand. The prices have been trading in the same range for the past number of days, and many traders believe that as long as the crude oil price continues to trade above the 70 price mark, there is little to worry about as this is a sweet spot for OPEC to keep things unchanged.

Oil Price chart

Yesterday, we did hear from the Chinese policymakers that they want to provide more support to the real estate sector in terms of bringing more favourable policies; this is good news for oil demand, as traders do want to see a pick-up in oil demand. In addition, we also believe that the fact that Turkey has now allowed Sweden to join NATO will improve its economic conditions as the country will build a better relationship with the US, and we could see significant economic improvement there, which should improve oil demand.