The Day So Far
After the strong rally through to the US session close in equities, led by a powerful reversal in crude, we have an understandably slow morning today ahead of the key US CPI release this afternoon. Oil, after breaking above that $42 handle in the overnight session is now once again flirting with that level, providing a further lift to equities, while t notes have traded lower in correlated risk-on moves. The Bund however, has continued higher on its bullish trajectory but has found resistance at R1 following on from the Draghi-inspired stellar gains from last week.. In the currency space, the eur/usd finally broke out of its messy weekly range, hitting a low of 1.0646, but has yet to march lower with any considerable conviction. We saw the ZEW survey provide mixed results with a beat on the main number and a miss on the minor figures, equities seem to have shrugged off any pessimism with the Euro strengthening off the back of it too.
Slightly higher than expected UK core inflation has led to a brief bout of sterling strength versus the dollar, trading back above the 1.52 handle, albeit in fairly quiet trading conditions.
The Afternoon View
US CPI likely to set the tone for the afternoon as far as t notes and the dollar are concerned. Inline or higher than expected, particularly the ex-food and energy figure, and we are likely to see a resumption of the dollar strength as this would suggest that the Fed will have to move in December as the deflationary pressures ease and economic growth remains fairly solid if unspectacular. For equities, the strong rebound from 2000 in the S&P is likely to lead to further gains in the coming days IF crude can continue to rally above $42. If not, the way that correlation is going, renewed downside in crude should lead the S&P lower.
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