The FP Markets research team produce First Light News during the early hours of the European session, ensuring traders and investors have the news needed to begin their day.

Yesterday’s Highlights

Good morning.

Major US equity indices settled lower on Thursday, rocked by inflation worries. Led by the Nasdaq 100, down nearly 2.0%, the Dow Jones Industrial Average and the S&P 500 fell 1.3% and 1.4%, respectively. Declines emerged across the board in US equity futures ahead of the US cash open following the better-than-expected PPI (Producer Price Index) release. Producer prices increased 6.0% in the 12 months to January (vs +5.6% expected, +6.5% in December) and rebounded 0.7% on the month (vs +0.2% expected, -0.2% in December). This follows Tuesday’s CPI release, reporting an annual inflation print of 6.4%. While this marks a seventh consecutive deceleration from the June 2022 peak, the release came in higher than the expected 6.2% reading. Recent data—coupled with US Fed Members Bullard and Mester airing support for a larger hike at March’s Fed meeting—elevates concerns that the Fed may continue to maintain an aggressive policy tightening schedule. Currently, according to the CME’s FedWatch Tool, Fed funds futures show markets are pricing in an 85% chance of another 25 basis-point hike over a 15% probability of a 50 basis-point push.

Sector performance witnessed losses across all 11 S&P 500 sectors yesterday; notable laggards were consumer discretionary stocks, down 2.2%, followed by technology shedding 1.7%. FAANG stocks also welcomed a sea of red at the closing bell; both Netflix (NFLX) and Amazon (AMZN) fell 3.0%, with Meta Platforms (META) erasing 2.7%.

Unsurprisingly, procyclical currencies—AUD, NZD and CAD—were underwater yesterday, and modest safe-haven flows underpinned the dollar and Swiss franc. In the commodities space, gold concluded the session unchanged against the US dollar, while silver and WTI oil fell 0.2% and 0.6%, respectively; palladium rose nearly 4.0%.

Regarding US rates, Treasuries bear-steepened: longer-dated yields observed the benchmark 10-year US Treasury yield gain 6 basis points to 3.867%, while the 30-year US Treasury yield rallied 8 basis points to 3.918%.

Markets Today

Major Asia Pac equity indices finished soft overnight; the Nikkei 225, South Korea’s KOSPI and Australia’s ASX 200 fell 0.6%, 1.0% and 0.9%, respectively. Economic data is particularly thin today; we did, however, have UK retail sales numbers in early European hours showing an unexpected rise in January by 0.5% after a 1.2% drop in December. In Europe this morning, equity markets also took their lead from Asia; The FTSE 100, the DAX, the CAC and the Euro Stoxx 50 are down 0.4%, 1.2%, 0.9% and 1.1%, respectively.

Technically, the EUR/USD is on the doorstep of daily support from $1.0602, with the US Dollar Index approaching daily resistance coming in at 104.86. Interestingly, spot gold in dollar terms (XAU/USD) is now exploring space south of daily support at $1,828 and poised to approach its 200-day simple moving average at around $1,776.

Tier-1 Economic Data in Focus for the Day Ahead:

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Currency Markets as of 9:00 am GMT:

EUR/USD: $1.0637 -0.3%

GBP/USD: $1.1924 -0.6%

AUD/USD: $0.6828 -0.7%

USD/JPY: ¥134.95 +0.8%

NZD/USD: $0.6200 -0.9%

USD/CAD: C$1.3519 +0.5%

USD/CHF CHF0.9298 +0.5%