Overview
- Euro declines after weak inflation data
- Technology stocks slip
- Chinese stocks dwindle amid fear of increased regulation
- Sterling trading at two-month high
- Oil strengthens as investors await OPEC decision
Forex
The euro dropped lower after Core CPI Flash Estimate y/y came in at 0.9%, failing to reach the expected 1%.
Unemployment fell to 0.8% from 8.9% in October. The stronger job market failed to stimulate inflation, which has remained consistently below the European Central Bank’s target of 2%.
The lagging inflation reading outlines a dilemma for the ECB. Despite the fastest growth in the region in a decade, sustained price stimulation is subdued.
The single currency has dropped 0.04% off its value per dollar.
Sterling is trading at its highest level in two-months against the dollar amid hopes that Brexit negotiations have reached a turning point.
The UK is prepared to pay all liabilities to the EU, which could range from €40bn to €100bn. Agreeing to pay the Brexit bill will move the negotiation onto topics such as the Irish border and trade.
This week’s progress on US tax reform has supported the dollar. Investors hope that Washington’s legislators will deliver the fiscal stimulus promised during Donald Trump’s campaign.
Stock Markets
Technology stocks came under pressure overnight as hopes of US tax reform caused investors to redirect their long positions, favouring financials.
The tech sell-off is cooling off as we veer further into the European session. Although investors remain cautious, as Chinese stocks continued to decline.
Since January, the tech-heavy Nasdaq 100 has added 26% to its value. Investors were keen to lock in gains, thus shifting their bullish bets.
The tech sell-off started in the US, as investors mulled over the high valuations left after this year’s strong rally. Wall Street’s S&P 500 gave up 2.6%, while Hong Kong’s Hang Seng was 1.3% weaker.
Europe has shrugged off the declines, illustrating the resilience of the eurozone. Germany’s DAX 30 has increased 0.76%, while France’s CAC 40 has gained 0.28%. The bullish momentum is steaming from the robust demand for financial stocks in the trading bloc.
Conversely, financials are leading the declines on mainland China. The prospect of increased regulation in the region and a deleveraging of the economy is gnawing on investor sentiment, sending stocks lower.
Commodities
OPEC and non-OPEC members have gathered in Vienna to discuss its production strategy. The cartel is widely-expected to extend production curbs to the end of 2018.
Oil declined overnight as doubts seeped in over Russia’s commitment to the output cuts. The commodity has since reclaimed some of those losses before OPEC’s final decision which will be released later today.
Brent oil, the international benchmark, has added 0.57%, while crude oil has gained 0.4%.
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