It seems that market sentiment has somewhat improved in the wake of strong corporate earnings reports from some US firms, including Cisco Systems. The company saw its share value surge by 10% on Wednesday. Moreover, US retail sales data came upbeat.
After the release of somewhat disappointing consumer inflation results in the US, demand for risk assets decreased. However, after the publication of a rosy retail sales report and strong corporate earnings on Wednesday, it again increased, which may change sentiment across markets.
Retail sales excluding autos rose by 2.3% month-over-month in January. The reading came above market expectations of a 0.8% gain. In general, retail sales also grew by 3%, way above market forecasts of a 1.8% rise. In the previous month, the figures dropped by 1.1%.
What does a rosy retail sales report mean for the market?
It means that the American economy might avoid a recession. An increase in demand might boost business activity, thus triggering an economic recovery in the US. In such a case, the inflationary pressure of demand could go down in the wake of higher supply. Clearly, it will unlikely happen in a blink of an eye. However, that could potentially persuade the US Federal Reserve not to pause tightening on the back of a slowdown in inflation. The stock market would receive some support, the Treasury bond yield would decrease, and the greenback would show some weakness amid expectations of aggressive moves from the regulator.
Why did the dollar strengthen against its main counterparts on Wednesday?
The rise came primarily due to the release of UK inflation figures. The results came better than expected, thus pressuring the pound sterling and making investors think that the peak of inflation in Europe was already behind. In addition, it might be a serious reason for the Bank of England, the ECB, and other regulators to end the tightening cycle.
What is on agenda in the market today?
There is a high likelihood that the stock market will extend yesterday's growth and the greenback will get weaker. If the PPI and jobless claims beat market expectations, this trend may get stronger.
Outlook:
GBP/USD
The pound/dollar pair reversed upward and broke through 1.2040. In case of consolidation above the mark, the quote may recover to 1.2200.
XAU/USD
Gold may encounter support if the general pressure on the greenback increases. We may see a bullish continuation to 1865.65 after a breakout through 1841.85.