UK inflation reads lower than expectations for the first time since February 2023, declining from 8.7% to 7.9%. As a result, the Pound declined by 0.60% against the Euro and 0.70% against the Swiss Franc. The Pound is now the worst-performing currency of the day as investors rethink how high rates can go. Analysts say investors will now focus less on inflation and economic growth. According to economists, the UK is still at the highest risk of witnessing a recession with high prices, a high cost of debt and a debt-to-GDP ratio above 100%.
The best-performing currency, for the first time in over a week, is the US Dollar. The US Dollar Index is trading at 100.30, its highest since last Thursday. The Dollar index has risen by 0.34% during this morning’s session, mainly due to the news from the UK. The is increasing in value against the Pound, Euro and Yen; however, technical analysts are also monitoring potential corrections as the impulse wave has received an overbought signal in the ultra-short term.
Furthermore, currencies are not the only category affected by the latest inflation data. European, UK and US stocks are up during this morning’s futures market and the European session is set to open on a bullish gap. The global stock market is also supported by stronger-than-expected earnings, specifically in the banking sector. As a result, the Dow Jones rose to its highest level since April 2022 and the NASDAQ since January 2022. According to economists, the banking crisis is now “over” after analysing the latest earnings reports from the banking sector. In addition, some economists have even stated that larger banks may have benefited from the collapse of small and small-medium-sized banks.
GBP/USD - UK Inflation Pressure the Pound
The Pound was the best-performing currency last week after the Swiss Franc and Japanese Yen. However, the latest inflation data might possibly pressure the Pound in the medium-longer term, particularly if inflation continues to decline along with the UK’s Gross Domestic Product. The GBP/USD declined by 0.75% after the published inflation data. However, a retracement has formed, leaving the exchange rate at -0.49%.
As the impulse wave is significantly larger than the exchange rate's traditional swings, the asset received an oversold signal and formed a retracement. Therefore, traders should consider being cautious of a correction, which is common after essential announcements. However, if the price again gains bearish momentum and declines below 1.2934, bearish signals are likely to reappear. Traders may potentially find the analysis on smaller time frames more beneficial during this period. Trend lines and moving averages are indicating the exchange rate may find support at 1.2894. However, trend and momentum indicators point downwards on all Pound pairs.
Even though the official inflation rate read significantly lower, other data was not convincing. Core inflation, which excludes volatile energy, food and tobacco, remained sticky, declining from 7.1% to 6.9%. However, investors will be happy to see the core inflation data withdrawing from the 31-year high. Investors will potentially now pay attention to the Bank of England’s forward guidance. It is too early to consider a pause or a pivot, the bank is likely to continue hiking, but investors will be looking at the possibility of the terminal rate changing.
SNP500 - Earnings Boom Bolsters Stocks
The SNP500 rose by 0.83% during yesterday’s trading session and by almost 1.30% this week. The index is also trading higher this morning after receiving support from the UK inflation data and predictions from members of the European Central Bank that the EU’s inflation rate will also decline. However, the main price driver is the latest earnings reports from companies making up the fund.
Yesterday, Bank of America, Morgan Stanley and Charles Schwab released their earnings reports for the past quarter. The most significant price increase was seen by Charles Schwab, which rose by more than 12.50% after releasing its quarterly report. Morgan Stanley rose by 6.45% after their Earnings Per Share figure beat expectations by 19%, and the bank’s revenue beat expectations by 3%. Lastly, Bank of America rose by 4.42% after their Earnings Per Share and revenue again read higher than expectations.
Bank of America is the most influential stock of the three holding a “weight” of 0.54%. However, today’s earnings reports will be even more influential as they hold much more weight. Throughout the next 24 hours, markets will have their eyes fixed on the following reports:
- Tesla - Expected EPS $0.69 - After Market Closes
- Netflix - Expected EPS $2.82 - After Market Closes
- Goldman Sachs - Expected EPS $3.25 - Before Market Opens
Tesla holds a weight of 2.07%, Netflix a weight of 0.53% and Goldman Sachs a weight of 0.29%. If earnings continue to read higher than expectations, the stock market can rise amidst the lower inflation data.
Summary:
- UK inflation reads lower than expectations for the first time since February 2023, declining from 8.7% to 7.9%. The Pound significantly declines as a result.
- Earnings reports and lower inflation data continue to support the stock market. Investors now turn their attention to Tesla, Netflix and Goldman Sachs.
- The best-performing currency this morning is the US Dollar. The US Dollar index has risen by 0.34% this morning, mainly due to the news from the UK.
- The most significant price increase was seen by Charles Schwab, which rose by more than 12.50% after releasing its quarterly report.
- Morgan Stanley rose by 6.45% after their EPS figure beat expectations by 19%, and revenue beat expectations by 3%.
