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Daily Wrap Up 12 September 2022

12 Sep 2022 05:03 PM

Traders are in risk-on mood once again as stocks, metals and oil are rallying. Tomorrow, the US CPI data will be posted, and economists are expecting a reading of 8.1%, which would be a fall from the 8.5% posted in July. US CPI hit 9.1% in June, its highest mark in 40-years. Rising inflation is the main reason why the Fed is in a hiking cycle. If tomorrow’s CPI report falls, that could spark chatter the US is beyond peak inflation. Keep in mind, that Loretta Mester of the Fed announced last week that she feels that inflation has not peaked yet. There is speculation the Fed will lift rates by 75-basis points later this month. Even though there is the talk in the markets, the 10-year yield has dropped to 3.287%, the move lower in yields contributed to the jump in stocks and the weakness in the US dollar. The DAX hit a three week high, and the Dow Jones reached its highest mark in over two weeks. It appears that dealers are snapping up equities now with the expectation that US inflation will fall tomorrow.

It was a double victory for EUR/USD because the fall in the greenback helped the currency pair. Also, Luis de Guindos, the ECB vice President, said he does not know how much rates will climb, so the euro is higher across the board. In July, the ECB lifted rates by 50-basis points, last week we saw a 75-basis points lift, and there is talk of more large rate hikes being in the pipeline. This morning, EUR/USD came close to 1.0200 but it has retreated from the peak. Sterling is strong this afternoon even though the UK GDP report missed expectations. The British economy expanded by 0.2% in July, and that was a big improvement on the -0.6% posted in June, but the forecast was for growth of 0.4%.

WTI and Brent were subdued earlier following the news of new Covid-19 restrictions in China, but the oil market is now showing strong gains as the wider bullish sentiment took over. Metals like copper, silver and platinum are all benefitting from the slide in the US dollar, the wider risk-on mood is factor too.

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