BP’s highest profit in 8 years supports the FTSE

The economic calendar is quiet with all eyes on Thursday’s US inflation data. The FTSE is set to outperform its peers after oil major BP reported a huge profit.

• US treasury yields rise ahead of Thursday’s inflation data
• ECB Christine Lagarde tones down her hawkish stance
• BP records its highest profit in eight years & helps FTSE outperform

European markets ended broadly higher yesterday, whilst the main indices on Wall Street gave up earlier gains and finished the session in the red. The Nasdaq under performed its peers, as the tech heavy index continues to see heightened levels of volatility. 

The economic calendar has been quiet on both sides of the Atlantic so far this week. After Friday’s blowout non-farm payroll report, attention is now firmly on US inflation data due on Thursday. The inflation report is likely to direct trading in the near term. Hot inflation will spark concerns of a more hawkish Fed and slower growth, possibly hurting demand for stocks, particularly high growth tech stocks, which perform better in low interest rate environments.

Even before we get to Thursday US treasury yields are on the rise in anticipation of higher inflation and a more aggressive Fed, boosting the greenback and pulling US futures lower.

Lagarde cools her hawkish tone

Inflation fears aren’t just present in the US. In Europe, the ECB adopted a more hawkish stance, last week in the press conference following the ECB meeting. Other ECB policy makers, such as Klass Knot have also sounded more certain about a rate hike by the end of 2022. However, Christine Lagarde cooled her hawkish tone yesterday, when speaking to the European Parliament insisting that there was no need for big monetary tightening moves, as inflation would fall back to the ECB’s target 2%. Inflation in the bloc currently sits at 5.1%

Christine Lagarde’s comments took the wind out of the euro’s sails and the euro is coming under pressure for a second session. EUR/USD is grinding lower towards 1.14 after trading as high as 1.1480 on Friday.

Gold

With so much focus on inflation, Gold, also known as a hedge against inflation, started the week on the front foot, rebounding from Friday’s post NFP low of $1792 to a weekly high of $1824. Ongoing geopolitical risks in eastern Europe, in addition to the softer tone to US equities and elevated inflationary pressures helped lift the safe haven higher. At the same time, the prospect of a more hawkish Fed is limiting the gains on Gold. The markets are starting to price in a full 50 basis point rate hike in March. The prospect of a more hawkish Fed boosted treasury yields and is capping gains in the precious metal.

BP swings into profit 

In corporate news BP reported profits of $12.8 billion in 2021, the highest level in eight years thanks to surging oil and gas prices and a marked improvement from the $5.7 billion net loss reported in 2020. Underlying replacement costs, the sector’s equivalent of net earnings was $4.1 billion ahead of the $3.93 billion analysts forecast and up from $3.32 billion in the previous quarter. BP shares are expected to start higher following the results, and help the FTSE outperform peers. BP stock is up 23% year to date. However, it remains below pre-pandemic levels as the firm attempts to transition towards a greener, likely less profitable future.