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Morning Brief

UK inflation is evaporating

This morning we received the data for the UK’s CPI year-on-year for the month of February 2021. To say it was disappointing would be an understatement, worrying would be more realistic. At 0.4% there is little inflation even though we have seen the price of energy rising and the most optimistic of covid-19 vaccination programs. The lower guestimate from those surveyed prior to the data release was for UK CPI to come in at 0.5% but the consensus was that we would see 0.8% last month.

The UK’s PPI data show that producers are paying less for their products but are also unable to pass on higher prices to consumers as the input data shows a deflationary effect from the revised 1.0% to last month input prices dropping to 0.6%, with output prices also declining.

The global economy is on the rise though as data from China recently shows a recovery of exports and according to the latest HIS Markit Global Trade Index, global trade was estimated to be 14.9% higher than a year ago in January. This rate of change has not been seen since the early 2010s.

Chinese exports have risen year-on-year by around 60% over the first two months of 2020, so the data post-April will give a better indication of how well global growth and demand for trade is sustaining after the pandemic lows fall off the considered data points.

In the London session, we receive the European and UK Flash PMI’s so that could be market moving if there is a particularly bad print or if we keep it positive and nice surprise in the data. Though expectations are to the downside currently.

This week is being dominated by Fed and Central bankers testifying and talking around monetary policy. It is unlikely to have any new data points to add to what has already been jawboned but the market will be on high alert for any new forward guidance.

The Asia-Pac session was a bad one for the Nikkei, Hang Seng, and Shanghai stock exchanges and the UK FTSE 100 will probably suffer due to the momentum in risk stocks plus bad UK data. Yesterday saw the Nasdaq find a supporting base to spring from the 13000, so with any luck that will provide some changes of fortunes to risk assets in the coming sessions.

The UK 100 chart is trading around a significant price pivot, so trading will be choppy until we get to a sustained movement away from the 6600-6700 price zone. The Ichimoku Cloud indicator is a good daily indication of where current support is to be found.

The US dollar is still dominating the G-10 forex pairs and after yesterday’s massive sell-off in the Kiwi, today has already started badly for the Antipodeans, though GBPUSD is currently the dog of the currencies. The US dollar index is compressing under the 200-period ema on the Daily chart, so any close above that in the next day or so will be significant.

Cable is trading above the 200-ema on the Daily chart but has broken through a significant rising trendline. Which makes the test of the moving average more likely now. The ActivTrader sentiment indicator shows that 70% of traders are bullish and I would expect that when that flips to the majority being bearish, that would be the signal to buy, assuming we’re above the 200-ema.

The EURUSD is showing how weak the European union is compared with the USA due to the rising cases in covid-19 across its major cities. There is talk of an uptick in cases in the USA but the sheer amount of money being thrown at the disease and getting the US economy back up and running should, one would hope, flatten the curve sooner rather than later. The next stop for the single currency could be the double bottom from the Autumn of 2020. While it trades below the 200-period exponential moving average, we should be looking for intraday short sells.


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