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Analysis

Stocks and precious metals soar on lower CPI

BY Janne Muta

|July 13, 2023

Equity indices (DJ +0.36%, S&P 500 +0.84%, NAS +1.29%) rallied together with the major dollar counterparts as the lower inflation US numbers drove the bond yields and the dollar into a steep decline. Gold (+1.30%) and silver (+4.22%) rallied together with USOIL (+1.38%) providing trading opportunities across the board.

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The US annual headline inflation rate slowed down to 3% (previous), marking the lowest level since March 2021 and falls slightly below the expected 3.1%. Traders place now an 80.5% probability on the Fed keeping the rates unchanged in September while the probability for a June hike (25 bp) remains at 92.4%.

The slowdown is partly attributed to the high base effect from the previous year. Then a jump in energy and food prices drove the headline inflation rate to its highest point since 1981 (9.1%). Compared to last year energy costs declined by 16.7%, The core inflation rate reached 4.8%, the lowest since October 2021.

Today’s GDP m/m release shows that the UK economy contracted by 0.1% in May (-0.3% expected). The decrease was primarily driven by a 0.6% drop in production. Construction fell by 0.2%, while services remained stagnant, with a decline in retail trade offsetting an increase in health and social work activities. Consumer-facing services saw a 0.2% decline.

Today’s main risk even is the US PPI release. This will be followed closely by the market participants as it gives us clues on the US inflation trends in the future.

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DAX

Dax is bullish above 15 908 and could move to 16 180. Below 15 912, a move to 15 850 would be likely.

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FTSE

FTSE rallied nicely yesterday after the market pushed through the 7306 resistance level and remains bullish above 7400. Now the market has almost reached a key resistance level at 7426. If the rally starts to fade at the level, the market could retrace back to 7348 (38.2% retracement level). Alternatively, we might see a rally continuation to 7470.

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GBPUSD

GBPUSD is bullish above 1.2904. Below the level, the market could trade down to 1.2850. The market is trending strongly higher with the nearest support level at 1.2976. UK May GDP m/m came in at -0.1% (-0.3% expected). There was no significant market reaction to the data release.

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EURAUD

EURAUD is bearish below 1.6414. Above the level, we might see the market moving to 1.6465. The lower reactionary high at 1.6525 is a bearish indication and suggests the next key support at 1.6237 could be broken. However, as usually, look for price action to confirm your trade idea before executing any trades.

The next main risk events

  • USD - CPI and Core CPI
  • CAD - BOC Overnight Rate
  • GBP - UK GDP
  • USD - PPI and Core PPI
  • USD - Prelim UoM Consumer Sentiment

For more information and details see the TIOmarkets economic calendar.

Trade Safe!

Janne Muta
Chief Market Analyst
TIOmarkets

Tio Markets UK Limited is a company registered in England and Wales under company number 06592025 and is authorized and regulated by the Financial Conduct Authority FRN: 488900

Risk warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Professional clients can lose more than they deposit. All trading involves risk.

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Janne Muta

Janne Muta is a seasoned market analyst and trading educator with a M.Sc. in Finance. His strategies integrate macroeconomics with technical analysis and he shares his knowledge with the trading community.