Stocks rally as sentiment improves; GBP gains ahead of key May vote

Summary:

• Large gains seen in stock indices with US500 and DE30 hitting weekly highs

• UK PM May to contest leadership challenge

• USD pulls back as inflation meets forecasts

• Oil mixed after smaller than expected inventory draw

• UAE and Saudi Arabia to launch cross-border digital currency

It’s been a good day so far for investors with stock markets in both Europe and the US hitting their highest level of the week. Some positive remarks on trade have seen sentiment improve markedly and bulls may well now feel more confident about further gains going forward. The US500 has gained by almost 2% and in doing so the market is trading at its highest level of the week on the European cash close

It's been a long time coming, but this morning we finally received official confirmation that the 48 letters required to trigger a Tory leadership challenge have been submitted. The vote amongst Conservative MPs is expected to take place this evening with an outcome likely to be known around 9PM. Despite this development the pound is actually moving firmly higher on the day as it looks to recover from the sizable declines so far this week as traders are seemingly growing increasingly confident she will survive.

The main economic data release of the afternoon has delivered little to go on with the latest inflation figures from the US matching expectations. The US CPI Y/Y for November increased by 2.2% as expected, marking a sizable drop on the 2.5% seen last time out. A core reading without food and energy also came in at 2.2% as expected, slightly higher than the 2.1% prior reading. USDCAD is pulling back from recent resistance around 1.3445 and there is some suggestion that the push higher is fading out. A break below the lower bound of the rising trend channel (currently at 1.3250) is needed for a larger correction however.

There's been some steady gains seen in the crude oil markets today with both Oil and Oil.WTI higher by over 1% at the time of writing. The latest inventory data has shown a second consecutive weekly drop, but with the decline being smaller than expected it hasn’t really provided much of a boost. The DOE number came in at -1.2M against a median forecast of -3.5M after last week’s print of -7.3M. Given that last night’s private API reading showed a mammoth drop of -10.2M if anything this data by itself is a little negative for price and the initial reaction did in fact see the market fall to its lowest level of the day. Oil remains confined to a roughly $6 range from 57.80-63.70. A break out of this consolidation could well lead to the next sustained move.

After some heavy declines of late the cryptocurrency markets are looking to perk up today with the majority trading in the green. EOS is the best performer and higher by around 9%.  The capitalization of the whole market still stands close to the $110 billion mark. The United Arab Emirates and Saudi Arabia, two Arabic countries, will cooperate to issue a cross-border virtual currency. Mubarak Rashid Al Mansouri, the Central Bank of UAE’s Governor, said today at Arab Fintex symposium in Abu Dhabi that it has started cooperating with Saudi Arabian Monetary Authority (SAMA) on virtual currency, as the Gulf News reported.