Stocks Defy Inflation Figures, Rise on Positive Economic Data

Investors ignore the risks of higher interest rates and concentrate on the US economy, which maintains resilience and strength. Economists are now almost certain that the Federal Reserve, the central bank of America, will continue to increase interest rates. According to experts, the Fed’s committee will vote to keep increasing interest rates until May before re-evaluating the scenario. More specifically, the Fed will re-evaluate inflation figures, employment, and economic growth. 

The stock market during yesterday’s trading significantly increased and ended the day slightly higher than Tuesday. The price of the NASDAQ and SNP500 has now fully corrected upwards, regaining losses from the CPI disappointment. The Dow Jones, on the other hand, continues to struggle, only managing an increase measuring 0.29%. What has triggered the climb?

US, European, and Asian stocks have increased in value, ignoring the latest inflation figures. The inflation figures will also certainly cause a higher terminal rate and higher bond yields, which are negative for the stock market. Nonetheless, the positive economic data must be addressed. Yesterday’s economic data indicated a strong and resilient economy which increased confidence and lowered the risk of a recession. 

So the question is, can we get inflation down while still experiencing economic stability? Most economists are calling this a soft landing. Higher interest rates are known to pressure the stock market significantly. JP Morgan, in January, advised that an interest rate of 6% could knock off 30% of the SNP500. However, will the stock market maintain its value if the economy remains resilient even with a higher interest rate? So far, this seems possible, but only if inflation simultaneously continues to decline. 

DAX Climbs Rises on Positive Economic Data

The German DAX this week has increased in value by 2.30% and is close to last week’s price high. The DAX has increased in value by over 10% this year, which is a better start to the year than 2020, 2021, and 2022. However, positive and negative factors may influence the price over the next 2 months. 

In terms of technical analysis, price action, and indicators sign that the price is in an upward trend but may lose momentum soon. On smaller timeframes, (1 hour and below) trend indicators signaled a clear bullish trend with only 1 retracement on the 14th. However, the price has formed a “head and shoulder pattern” close to February’s resistance level. Both factors may indicate a slowdown or potential resistance. 

DAX 4-Hour Chart on February 16th 

German businesses are also likely to experience disruptions over the next week. German airports will reach a near standstill on Friday as many unions have announced strikes. Additionally, Lufthansa sees disruptions as workers accidentally drilling through data cables bringing down their IT systems. 

Another issue for the German stock market is the European Central Bank’s latest comments on their monetary policy stance. The Eurozone is in a different scenario to the US due to a delayed response from regulators to tackle inflation.

Inflation in the Eurozone is currently 2.1% higher than in the US. The president of the ECB, Mrs. Lagarde, confirms the regulator will increase interest rates by a further 50 basis points at their next meeting. This would bring the main refinancing rate to 3.5%, the highest in 15 years. 

In conclusion, investors will be evaluating if the positive economic data will be able to help the DAX push above the 15,700 Euro resistance level or if a more restrictive regulator will restrict growth. 

EUR/USD - Inflation Figures in Focus

The EUR/USD is increasing during this morning’s Asian and European Session but continues to follow the price range. Investors are pricing the asset between 1.0650 and 1.0800. The exchange rate is finding resistance and support at these levels. The US Dollar Index declines to 103.55, while the Euro has increased in value over the past 24-hours against the Pound and Yen. 

EUR/USD 4-Hour Chart on February 16th 

Both currencies are supported by the prospects of a hawkish central bank and positive economic data. The Eurozone, on the other hand, is experiencing more economic pressure due to disruptions in supply chains and reduced demand for products. Still, experts hope the situation will improve as the energy market stabilizes.

Today, investors will closely monitor the Producer Price Index, which is expected to increase to a 5-month high. The PPI concentrates on producer inflation, whereas the CPI looks at consumer inflation. A figure above 0.4% can further fuel inflation and may trigger stronger demand for the Dollar.

Summary:

• Global stocks rise on positive economic data and retail sales, but will higher interest rates tame growth?
• The NASDAQ and SNP500 increase to previous price levels while the Dow Jones struggles. 
• The German DAX this week has increased in value by 2.30% but will disruptions in the economy and a hawkish ECB pressure the upward trend?
• The Euro increases in value against the US Dollar, Pound, and Japanese Yen. 
• Today, investors will closely monitor the Producer Price Index which can influence the value of the US Dollar.