Pound Hits Two-Week Highs, European Stocks Gain As Risk-On Appetite Returns

Pound Hits Two-Week Highs, European Stocks Gain As Risk-On Appetite Returns

Here are the latest developments in global markets:

FOREX: Investors continued to digest encouraging comments by the Chinese President, Xi Jinping, during the early European afternoon, driving the Chinese-linked currencies the kiwi and the aussie even higher. The gains appeared after Jinping backed free trade and pledged to limit import tariffs, while his remarks also somewhat eased concerns over a yuan devaluation. However, a report by Bloomberg today saying that US-China talks regarding the high-tech industry have stalled last week pushed dollar/yen lower to 106.79 before it inched up to 106.97 (+0.22%). The dollar index gave back earlier gains, falling to 89.80 (-0.04%) as the pound and the euro strengthened even further. Pound/dollar advanced to a two-week high of 1.4178 after the BoE and MPC member Ian McCafferty told Reuters today that monetary tightening should not be delayed as wage growth might pick up faster than expected, pushing inflation above the BoE target. Euro/dollar stretched upwards to 1.2334 before it fell back to 1.2320 after the ECB member Ewald Nowotny reiterated that the ECB must reduce stimulus not too soon but neither too late. The Turkish lira tumbled to record lows against the dollar and the euro amid rising tensions in Syria as well as worries about the countries inflation and current account outlook.

STOCKS: European stocks opened higher after the Chinese President promised to improve the business environment for foreign investors, including a reduction in import tariffs in the auto industry this year. The pan-European STOXX 600 was up by 0.58% at 0900 GMT near one-month highs, while the blue-chip Euro STOXX 50 gained 0.75%, crawling up to six-week highs. The German DAX 30 surged 0.97%, with automakers leading the index, the French CAC 40 jumped by 0.69%, the Italian FTSE MIB rose by 0.31% and the British FTSE 100 increased by 0.38%. In Asia, equities closed higher, while in the US stock futures were in the green, pointing to a positive open.

COMMODITIES: Oil prices extended yesterday’s gains to one-week highs as trade tensions between the two biggest oil consumers, China and the US, continued to ease on Tuesday. WTI crude oil and the London-based Brent rallied by 1.34% to $64.27/barrel and $69.56/barrel respectively at 0900 GMT. In precious metals, gold was flat on the day at $1,336.13/ounce.

Day Ahead: US delivers PPI data; Canadian housing starts pending as well

Next on the day’s agenda, the US Bureau of Labor Statistics will release figures on producer prices at 1230 GMT. The headline PPI is expected to inch up by 0.1% percentage points to 2.9% y/y from 2.8% in the previous month, while the core measure which excludes food and energy is also predicted to rise by an equivalent percentage to 2.6% y/y. On a monthly basis, the headline index is forecasted to tick slightly lower from 0.2% to 0.1%, whilst the core PPI is predicted to remain unchanged to 0.2%. In case the numbers come in stronger than expected, the dollar could enjoy some gains. This could also raise speculation that March CPI’s due on Wednesday may rise as well. Forecasts are for the headline CPI to have risen to 2.4% y/y versus 2.2% the preceding month.

In other data releases, the Canada Mortgage and Housing Corporation will deliver figures on housing starts for the month of November at 1215GMT. The number of new constructions is anticipated to slow down by 10,700 to 219,000. Moreover, Canadian building permits for the month of February will be available at 1230GMT, with analysts predicting the gauge to turn negative to -1.5% m/m from 5.6% m/m previously.

In energy markets, investors will be waiting for the API weekly report to indicate the change in US crude oil stocks at 2030 GMT.

Early in the Asian session, corporate goods prices and machinery orders out of Japan at 2350 GMT will likely show some weakness.

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