Stocks jump, dollar dumps on peace and inflation data

• Trump moves to impose reciprocal tariffs as soon as April
• PPI points to softer Fed inflation measure than feared
• UK economy lifted by stronger-than-expected December performance
• Gold back near record high at $2942 as yields retrace Wednesday move

FX: USD fell through the October 2023 low at 107.3 and is very close to the January y-t-d low at 106.96. European currencies are enjoying decent buying after Thump’s “highly productive” phone call with Russian President Putin about starting peace negotiations soon. There was also news that Trump had signed reciprocal tariffs in more executive orders though the deadline of April 1^st left time for negotiations. PPI data was hot but the components that filter through to PCE were soft, which helped ease some of the inflationary concerns after the hot CPI on Wednesday.

EUR was bid again and settled above the key pivot and long-term low at 1.0448. A strong weekly close above the January top at 1.0532 is needed to really slow the long-term downtrend. Peace in Ukraine could be an important positive for European countries should it deliver lower energy prices and encourage broader investment.

GBP was the top G10 major versus the dollar as it beat the y-t-d high at 1.2549. GDP was a bit better than feared, though business investment fell sharply. A modest pick-up is predicted through this year due to Government spending and real wage growth. Markets pushed back BoE pricing of the second 25bps rate cut to the November meeting from September.

USD/JPY reversed most of the prior day’s US CPI led gains. The 10-year US Treasury yield retraced and pulled the major back through the 100-day SMA at 152.97.

AUD advanced higher and looks like it could break quite sharply higher towards 0.6350. The 50-day SMA is at 0.6268. USD/CAD broke down – see below.

US stocks: The benchmark S&P 500 closed in the green, up 1.04% at 6,115. The tech-dominated Nasdaq settled higher, up 1.49% at 22,030. The Dow Jones finished up 0.77% at 44,711. Materials, consumer discretionary and tech led the gains, with all sectors in positive territory. Apple’s CEO Cook posted on X “Get ready to meet the newest member of the family. Wednesday, February 19. #AppleLaunch”. The stock was up 1.97%. Tesla and Nvidia led the Mag 7, rising 5.77% and 3.16% respectively. Meta posted its incredible 19^th consecutive day of gains.

Asian stocks: Futures are in the green. Stocks were mixed with positive geopolitical Ukraine news but also hot US inflation data to contend with, so possibly less fed rate cuts through 2025. The ASX 200 posted an all-time high as miners led the gains. The Nikkei 225 advanced on yen weakness in spite of firmer Japanese PPI figures. The Hang Seng and Shanghai Comp were mixed with Hong Kong leading the way and the mainland more cautious.

Gold attracted more buying yesterday after the brief sell-off post-US CPI data. The intraday record top is at $2942 from Tuesday. Treasury yields dipped, moving back closer to 4.5% on the 10-year.

Day Ahead – US Retail Sales

The main event on the calendar today will be US retail sales, which are expected to be soft. That is mainly due to new auto sales that fell 7% m/m in January so should weigh down the headline print. Gasoline prices were also very slightly cooler in seasonally adjusted terms. Bad weather very likely deterred people from going out so that could weigh on trave, and leisure spending. ‘Control group’ sales are forecast to post modest growth of around 0.3% m/m.

The US consumer has been the major driver of the economy for some time. The relatively buoyant labour market has helped, with wage growth solid and steady.

Chart of the Day – USDCAD breakdown?

The loonie has been on a wild ride over the last couple of weeks. USD/CAD spiked higher a few Mondays ago to levels last seen in April 2003. We wrote before this how the major was gearing up for a sharp move as prices had been stuck in a range for some time. Range contraction means expansion. Of course, the volatility was on the back of Trump’s tariffs news on Canada, which swiftly got delayed for a month. More threats have come and gone, while BoC interest rate pricing has been oscillating 50/50 on a March rate cut. But policymakers may not have enough new data to pull the trigger on that.

Prices very firmly rejected those multi-decade highs. We warned that could happen, as the 2016 and 2020 peaks around 1.46 were short-lived too. The major had been trading to the bottom of the long-held recent range around 1.43 to 1.45 in recent days but moved through the January low at 1.4260 yesterday. The midpoint of the September to January bull move sits at 1.4106.

Disclaimer: The material provided here has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Whilst it is not subject to any prohibition on dealing ahead of the dissemination of investment research we will not seek to take any advantage before providing it to our client. No representation or warranty is given as to the accuracy or completeness of this information and therefore it shouldn’t be relied upon as such. Any research provided does not have regard to specific financial situations, needs or investment objectives. Vantage accepts no responsibility for any use that may be made of these comments and for any consequences that result. Consequently, any person acting on it does so entirely at their own risk. We advise any readers of this material to seek professional advice where necessary. Without the approval of Vantage, reproduction or redistribution of this information isn’t permitted.