Pound Near 14-Month Low as UK CPI Looms

The pound hovered near a 14-month trough, testing $1.2056, as markets awaited UK CPI data, with headline inflation expected steady at 2.6%. European stocks showed slight gains, while Asian shares struggled for direction, and US equity futures remained flat. Analysts are bracing for the release of US CPI data and key earnings reports from major US banks, which could shape global market sentiment.

Equities

The FTSE 100 slipped 0.3% on Tuesday, closing at a two-week low as several blue-chip companies weighed on the index. BP shares fell 2.8% after the energy giant warned that its fourth-quarter results would be hit by weaker oil and gas production, lower refining margins, and softer trading conditions.

JD Sports Fashion dropped 6.8% following a profit warning tied to subdued trading in the UK and US, coupled with promotional pressure from competitors. Ocado Group surged 9.5% after its joint venture with Marks & Spencer, Ocado Retail, reported faster sales growth in the fourth quarter. Housebuilder Persimmon climbed 5.5%, with management forecasting 2024 earnings at the higher end of market expectations, supported by improved sales and pricing power.

In the US, the S&P 500 edged up 0.11%, while the Nasdaq dipped 0.23%, reflecting mixed sentiment ahead of inflation data and corporate earnings. Boeing shares fell 2.08% after reporting its lowest annual jet deliveries since the pandemic, dampening investor sentiment.

Healthcare stocks lagged, with Eli Lilly dropping 6.59% due to a weak sales forecast for its weight-loss drug Zepbound, which fell short of market expectations. Goldman Sachs gained 1.52%, buoyed by optimism ahead of its earnings release on Wednesday. The Dow Jones Industrial Average outperformed, rising 0.52%, helped by strength in banking shares.

Treasury yields stayed near 14-month highs, with the 10-year benchmark holding at 4.784%. Markets remain focused on the upcoming US consumer price index (CPI) release, which could further shape expectations for Federal Reserve policy.

The FTSE 250 index gained 0.2%, recovering from an eight-month low. British bond yields eased slightly after recent multi-year highs, as traders awaited inflation data from both the US and UK to gauge interest rate trajectories.

Forex & Commodities

The Japanese yen rose 0.43% to 157.29 per dollar, driven by comments from Bank of Japan Governor Kazuo Ueda suggesting a potential rate hike at the upcoming policy meeting, with markets now pricing a 70% chance of a 25-basis-point increase. The US dollar paused its rally, with the dollar index slightly lower at 109.17 following Tuesday's dip, which was influenced by softer-than-expected producer price data. The euro held steady at $1.0301, while sterling edged lower to $1.2207, pressured by concerns over domestic fiscal challenges and rising borrowing costs ahead of UK inflation data.

Gold prices inched higher as spot gold traded at $2,681.34 per ounce, up 0.1%, with US gold futures rising 0.5% to $2,696.10. Investors are watching US inflation data due later in the day, with expectations of a 0.3% monthly increase in core prices. Analysts anticipate that stronger inflation readings could weigh on gold due to expectations of tighter Federal Reserve policy, though recent labour market resilience has already tempered rate cut expectations.

Oil prices edged higher, with Brent crude up 0.6% at $80.43 a barrel and West Texas Intermediate rising 0.8% to $78.14. Gains followed a larger-than-expected drop in US crude inventories, offsetting concerns about longer-term oversupply highlighted by the US Energy Information Administration. The EIA’s latest forecast predicted Brent prices would average $74 per barrel in 2025, reflecting pressures from potential sanctions and shifts in global supply-demand dynamics.