Here are the latest developments in global markets:
- FOREX: Hopes that the ECB will step back from its monetary stimulus and bets that Germany will form a grand coalition government soon added further gains to the euro during early European trading hours. Merkel’s Conservatives and their former coalition partners Social Democrats agreed today on a blueprint to formally start coalition negotiations. Euro/dollar rallied to a three-year high of 1.2136 (+0.76%), euro/yen surged to 134.78 (+0.64%) and euro/pound remained flat at 0.8891. The dollar index took a knock in the face of a strengthening euro, diving to a four-month low of 91.30 (-0.52%), while dollar/yen tumbled to a six-week trough of 111.12. The pound was also benefiting from a rising euro and a weaker dollar, with pound/dollar peaking at 1.3640, a level last seen in September.
- STOCKS: Decreasing political risks in Germany offered little comfort to European stocks as the focus was mainly on earnings releases. The pan-European STOXX 600 offset earlier losses, edging up by 0.11% on the day after the British engineer GKN rejected a takeover from the rival Melrose, deciding instead to break the automotive and the aerospace divisions into two companies. A new chief executive was also declared. GKN shares jumped by 26%. The blue-chip Euro STOXX 50 was slightly up by 0.10% at 1100 GMT. The German DAX 30 rose by 0.22% driven by consumer cyclicals, the French CAC 40 increased by 0.30% while the Italian FTIMB jumped by 0.52%. The British FTSE 100 was up by 0.24%. US Stock futures were in the green, pointing to a positive open.
- COMMODITIES: Oil prices were on the backfoot on Friday, slipping below three-year highs but were also on track to post a weekly gain for a fourth consecutive time. Investors believe that the market is overheating. WTI crude oil fell by 0.63% to $63.38 per barrel and Brent declined by 0.27% to $69.07. Gold stretched its uptrend to a fresh four-month high of $1332.96 per ounce.
Day ahead: US CPI & retail sales pending; eyes on euro
The dollar will be exposed to several economic releases during the European afternoon on Friday, while political developments in Europe have also the potential to influence the currency in the upcoming days.
At 1330 GMT, the Bureau of Labor Statistics will release figures on US consumer prices, with the headline index expected to inch down in December. Particularly, analysts expect consumer prices to rise at a softer pace of 2.1% y/y compared to 2.2% growth seen in November. The monthly gauge is also projected to ease from 0.4% to 0.2% in the aforementioned month. On the other hand, the core equivalent which excludes food and energy items is said to remain flat at 1.7% y/y and the monthly growth to edge up by 0.1 percentage points to 0.2% m/m. However, even if the CPI is a common inflation measure, it tends to have a relatively softer impact on the dollar as the Fed states its inflation goals and therefore decides on monetary policy based on the PCE index due on January 29.
Meanwhile, the US Census Bureau will be publishing stats on retail sales for the month of December. Forecasts are for the measure to rise by 0.4% m/m after posting impressive growth of 0.8% in the prior month. Leaving automobile sales aside, core retail sales are anticipated to expand by 0.4% as well.
Business inventories will follow at 1500 GMT, with the monthly gauge estimated to turn to positive growth rates in November after retreating slightly in the preceding month.
In terms of public appearances, the FOMC member, and Boston’s Fed President, Eric Rosengren will speak on the economic outlook at 2115 GMT.
Yet, the euro’s performance during the day will play an important role on whether the dollar will succeed to strengthen even if the data comes in positive. Earlier, news out of Germany stating that Merkel’s Conservatives achieved a political breakthrough drove the euro to a fresh 2 ½-year high and pushed the dollar to bearish territory.
In oil markets, traders will keep a close eye on the US Baker Hughes oil rig counts due at 1800 GMT.