US futures and European markets are trading higher this morning as the positive momentum from Wall Street is making investors more confident in holding riskier assets. This is on the back of optimism that the Fed will stay accommodative with their monetary policy and will not rush to raise the interest rate irrespective of their economic data. The US Core CPI data did show some sign of stability yesterday, but the US Philly Fed manufacturing number was below expectations. This has made traders to increase their long bets and hence, we had the best closing for the Dow and the S&P index yesterday since August. If the Fed is not going to raise the interest rate this year, this is also a good news for the emerging markets. Therefore, we are seeing strong gains for the MSCI index during this week.
There were also dovish comments by the ECB policy maker Ewald Nowotny who said that the bank may look at other options so that they can inflate their buying list. Given the inflation is still a massive headache for the central banks around the globe and the economic data are also printing meagre readings, it may be no brainier if we do actually see those actions taken by the ECB in the coming days. Thus, going into the next week, all eyes will be focused towards the upcoming ECB meeting and investors will suss out the possibilities of more quantitative easing. This is certainly a big news for the European markets and the old trade could once again become very popular which is sell the currency and buy the equity market.
If inflation is the big concern for the central bank, then it is not going away any time soon, because commodity prices are still challenging the situation. Crude oil is back on the downward spiral and fundamentals have not changed at all. Investors are anxious that with Iran itching to come back online with more oil, the supply glut picture will become richer. We have no signs of any supply cut from the biggest player in OPEC- Saudi Arabia. There are talks that perhaps some sort of quota system will be applied and other members will make some room for the upcoming Iranian oil, however, if that will happen when everyone is fighting for themselves, is a very difficult question.
In terms of economic docket, we have the US industrial and manufacturing production data and unfortunately the forecast is not that rosy. The expectations are for a decline of -0.3% and -0.2% respectively.
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