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FTSE flat & GBP/USD higher after CPI beats expectations

The FTSE struggled to make head way during Tuesday’s session, as a stronger pound and a weaker start in the US, overshadowed strength in the UK mining sector. The FTSE is heading into the close just 3 points higher at 7180 after bouncing off 7200. 

Oil sinks following IEA report 

Miners dominated the upper reaches of the FTSE tracing base metal and precious metals higher across the session. The good fortune for commodities didn’t stretch to oil, which was trading lower, despite the weaker dollar. WTI was down over 1% at $58.63 after having popped above $60 per barrel in the previous session. 

The bearish factors working against oil are outweighing positivity which has been creeping back into the market over the past few months. 

Whilst OPEC appear to have down an excellent job removing the oil glut, the boom in US shale productions looks set to ruin OPEC’s party. The US added 26 active rigs last week as per the Baker Hughes report, the highest number since 2015, in signs of extraordinary growth. 

Adding to investor concerns a report from the IEA predicted that rising supply from non-OPEC countries will potentially leave supply outstripping demand once again, even with OPEC production limits in place. Whilst increased global demand could offer some support to the price, WTI is in a correction phase, after having dropped over 10% from its recent peak.  

UK CPI beats, can UK sustain an earlier rate hike? 

A stronger pound also capped gains in the FTSE, as GBP/USD has spent much of the day trading around 0.3% higher. The pound spiked even further northwards after inflation figures beat expectations, however the effects were short lived. 

A higher inflation reading, coming to a back drop of a more hawkish sounding BoE would normally send the pound soaring. The fact that it didn’t, suggests that market participants are at least cautious of the ability of the UK economy to sustain sooner and faster rate rises in the face of Brexit uncertainties.  

US traders cautious ahead of Wednesday’s CPI 

Over in the US, the equity indices kicked of the session on the back foot with the Dow opening 170 points lower and the S&P slipping 0.5%. However, sentiment has improved as the session advances and the indices are paring losses. 

Investors are now looking ahead to key readings on Wednesday and Thursday in the form of CPI data and retail sales. Markets have been on edge over the prospect of rising interest rates, so a higher reading from these releases could prove too much for the markets to stomach and send US equities back lower.

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