US stocks posted strong gains overnight, booking the first two-day winning streak in February. US equity indices rebounded from a historically poor past week, which saw the Dow Jones, the S&P and the Nasdaq all shed over 5% in their worst weekly performance in 2 years. Overnight the Dow had its best session in two years jumping over 400 points. It’s fair to say that whilst volatility has eased up from the 1000 plus swings last week, these are still much more volatile sessions than what we are used to.
The impressive rally on Wall Street spilt across into Asian markets, which posted healthy gains across the session. Unsurprisingly European bourses look set to follow suit and push on higher at the open.
Energy Stocks Rally as gold breaches $60 per barrel
Energy stocks have been a standout performer at the start of the week, as US crude charged above $60 per barrel, although has since eased back. Oil wasted no time capitalising on the weaker dollar and firmer market sentiment, to push northwards. Meanwhile, an optimistic OPEC report pointing to continued global growth-boosting oil demand also lifted the price of oil. Yet, despite factors supporting oil slowly starting to stack up, there are still multiple bearish factors weighing on sentiment towards crude; the principal factor being increased domestic oil production, which will cap any rally in the price of oil. Investors will now look towards American Petroleum Institute (API) inventories report. Another unexpected drawn down, like the previous week could propel crude comfortably back above $60 per barrel.
UK CPI in focus
After a relatively quiet start to the week, volatility could pick up in GBP/USD later this morning. The release of UK inflation figures is expected to show that headline inflation in Britain has ticked lower, to 2.9% year on year in January, from 3% in December. Meanwhile, core inflation, which excludes more volatile items such as food and fuel, is forecast to tick higher to 2.6% from 2.5% in December.
The CPI release comes following comments by the Bank of England, on Thursday, that sooner and greater inters rates rises could be needed to support the economy, as higher levels of a global growth boost the UK economy. However, a slight tick downwards in headline inflation is unlikely to support the pound, which when coupled with Brexit jitters could be in for a challenging session.
GBP/USD charts show the downward trend appears to remain in place. The pair is currently struggling at $1.3840. A firm break below will see sterling drop to $1.38 before heading on down to $1.3765. On the upside, near-term resistance can be seen at $1.3860, before the pair will look to head to $1.39.