Overview and expectations for September 12, 2018

Overview and expectations for September 12, 2018 including PPI

This overview highlights the most significant economic events taking place today: US Producer Price Index (PPI) and Crude Oil Inventories. Analysts’ expectations and how traders could benefit from the possible outcomes are also analysed.

Today’s overview focuses on US Producer Price Index (PPI) and Crude Oil Inventories. The PPI calculates the change in price of products sold by companies. This is a leading identifier of consumer price inflation. Inflation rates can be potential identifiers of a currency’s market value strength. Traders can take advantage of the indicators and trade accordingly.

Crude Oil Inventories calculate the change in number of commercial crude oil barrels held by US firms on a weekly basis. The inventories amount affects the price of petroleum products which influence inflation. Inflation rates can be a potential identifier of a currency’s market value strength. Traders can use the above indicators to maximise their investment’s potential.

Both sets of data can affect markets and traders can benefit by anticipating those effects and trading accordingly.

US PPI FALLING

A higher than expected Producer Price Index (PPI) value can be a bullish indicator for the USD. Otherwise, a lower than expected value can be a bearish indicator for the USD.

US PPI reading for July 2018 has fallen by 0.2% from June’s 0.5% figure to 0.3%. This was more than expected by analysts as projections expected a reading of 0.2%. The ongoing trade wars between the Trump administration and China kept the US Dollar stronger than expected. However, the reading for August fell short of expectations as it didn’t meet the expected 0.2%. The actual US PPI reading ended up being less than expected at a value of 0.0% indicating a weakening in the US Dollar. This was most likely due to President Trump’s criticisms of Fed’s Chair Jerome Powell’s action to raise borrowing costs without considering politics, increasing doubts towards the Federal Reserve’s rate hike and monetary policies.

At the moment, expectations for the USD remain bullish as the decline in previous weeks had more to do with correction.

CRUDE OIL SET TO FALL?

When crude oil inventories are higher than expected, it indicates lower demand for petroleum products. As a result, this can be a bearish indicator for crude prices. The same applies when a decline in inventories is less than expected. When increased crude oil inventories are less than expected, it indicates higher demand for petroleum goods. As a result, this is usually a bullish indicator for crude prices. The same can be applied when a decline in inventories is expected.

For August’s last week, increased inventories were less than expected due to high demand created by the anticipated Tropical Storm Gordon. Although the storm was expected to turn into a hurricane, it finally eased and moved away from oil-producing areas. As a result, increased inventories were higher than expected, dropping oil prices.

Last week, actual readings of decreased crude-stock was higher than predicted.  Analysts expected a 1.294 million barrels of inventory shortage, but the actual reading was 4.302 million. This can be seen as a positive indicator for USD strength.

As uncertainty continues as a result of the ongoing US – China trade dispute, traders try to anticipate if Trump will proceed with an additional $267bn tariff on Chinese imports. China is the biggest oil importer in the world. Therefore, any further trade war escalation could push oil demand growth, indicating a bullish change for the USD. Traders are also trying to anticipate market movements by using rig-count data for signals.

For more information about how to use PPI data and Crude Oil Indices data to maximise your trading investments, contact FXB today.

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