The FP Markets research team produce First Light News around the European open, ensuring traders and investors have the news needed to begin their day.

Yesterday’s Highlights

Good morning.

On Tuesday, one event was on the top of most minds: US inflation. According to the Bureau of Labour Statistics, annual inflation cooled to 6.4%. Although this marks a seventh consecutive deceleration since the peak of 9.1% in June 2022, it was slightly above consensus for a 6.2% print; the monthly measure, nonetheless, matched expectations at 0.5%. The market’s response was interesting. The immediate aftermath witnessed the Dollar Index spike to a high of 103.21 yet 2 minutes later we were trading beneath pre-announcement levels. In the EUR/USD, post-US CPI witnessed an immediate spike to a low of $1.0718, followed by a sharp U-turn to test the mettle of $1.08 before returning to pre-announcement levels. US S&P 500 futures observed similar price action ahead of the US cash open, and even when cash markets opened their doors, price action remained choppy with limited direction.

So, with higher-than-expected inflation, there is, at this time, no reason for the Fed to pause its pace of tightening going forward. According to the CME’s FedWatch Tool, a 90.8% chance for another 25 basis-point hike is currently priced in, leaving a 9.2% probability for a 50 basis-point increase.

In the equity space, US indices ended the session mixed. The Dow fell 0.5%, the S&P 500 ended unchanged and the Nasdaq 100 advanced 0.7%. Unsurprisingly, we finished mixed across the S&P 500 sectors: consumer discretionary and technology served as the top-performing sectors in the session, adding 0.4% and 1.2%, respectively. FAANG stocks were also mixed. Netflix outperformed, adding 0.4%, while Apple mirrored this movement and dropped 0.4%.

In FX, it was relatively subdued. The Dollar Index wrapped up unmoved, while the euro, the pound and the Aussie dollar eked out modest gains versus its US counterpart.

Regarding rates, the benchmark 10-year US Treasury yield added 4.6 basis points to 3.747%.

Markets Today

Overnight trading in Asia observed losses across the major Asia Pac equity indices; the Nikkei 225, South Korea’s KOSPI and Australia’s ASX 200 fell 0.4%, 1.5% and 1.1%, respectively. In Europe this morning, however, things are a little more optimistic. The FTSE 100 trades flat, while the DAX, the CAC and the Euro Stoxx 50 are up 0.4%, 0.7%, and 0.5%, respectively.

Early news saw the latest UK inflation release. In the 12 months to January, inflation in the UK cooled to 10.1%, following the 10.5% print in December. Although this marks a third consecutive slowdown in consumer price inflation, it is still five times above the Bank of England’s (BoE) target. GBP/USD immediately fell following the release, with the currency pair trading minus 0.6% as of writing. In early trading, we are also seeing a dollar bid which is weighing on procyclical currencies and commodities. The Aussie dollar, the New Zealand dollar and the Canadian dollar are all under pressure against the US dollar this morning; the AUD/USD is down 1.1% with the NZD/USD shedding 0.7%. Additionally, against the US dollar, the price of spot gold, spot silver, spot palladium and WTI are all trading in the red, with palladium down minus 2.0%.

Technically, the daily Morning Star candlestick patterns (bullish signals) mentioned in yesterday’s News Briefing appear to be holding ground on the Nasdaq Composite and Nasdaq 100. Spot gold is fast approaching daily support at $1,828 after cementing ground south of its 50-day simple moving average at $1,858, and BTC/USD recently showed a bit of life and pushed above $22,000 to shake hands with H1 resistance at $22,336.

Tier-1 Economic Data in Focus:

Month-Over-Month US Retail Sales for January at 1:30 pm GMT (Expected: 1.9%; Previous: -1.1%).

New York Empire State Manufacturing Index for February at 1:30 pm GMT (Expected: -18.2%; Previous: -32.9%).

European Central Bank (ECB) President Christine Lagarde to testify on the ECB Annual Report 2021 before the European Parliament.

Currency Markets as of 9:15 am GMT:

EUR/USD: $1.0726 -0.1%

GBP/USD: $1.2098 -0.6%

AUD/USD: $0.6910 -1.1%

USD/JPY: ¥133.41 +0.2%

NZD/USD: $0.6288 -0.7%

USD/CAD: C$1.3391 +0.4%

USD/CHF CHF0.9240 +0.3%