US Stocks Drift Lower Ahead of Key Inflation Data – Dow down 0.5%
US equity markets closed lower overnight as investors digested mixed economic data and positioned cautiously ahead of key US inflation figures due later today. The Dow Jones fell 0.54% to 49,395, the S&P 500 declined 0.28% to 6,861, and the Nasdaq slipped 0.31% to 22,682, reflecting a modest risk-off tone across Wall Street. In currency markets, the US dollar extended its recent recovery, with the Dollar Index rising 0.15% to 97.84. Treasury yields edged slightly lower, with the 2-year yield dipping 0.2 basis points to 3.457% and the 10-year yield falling 1.5 basis points to 4.067%. Commodity markets were again busy. Oil prices surged to fresh six-month highs as tensions between the US and Iran continued to escalate, with President Trump said to be contemplating a strike on Tehran this weekend. Brent crude climbed 2.20% to $71.90, while WTI gained 2.09% to $66.55. Gold also edged higher, rising 0.37% to $4,996.10, although the precious metal remains within its broader recent trading range.
US Inflation Data Again in Focus for Markets
Inflation data is in focus again today in the US time zone, with the Fed’s favoured inflation indicator due out shortly after the open. Extra emphasis will be placed on the data after Wednesday’s Fed minutes showed that several Fed members are showing concern about the ‘sticky’ inflation situation and are now considering that the next move from the FOMC could actually be a hike rather than the two anticipated cuts that the market has priced in for the year. Expectations are for a 0.3% month-on-month increase and a 2.9% year-on-year increase, and anything further north of that could see some big revisions to Fed rate move expectations in the market and another step higher for the dollar.
Busy Calendar Day to Close out the Week
It looks like being a busy day for traders to close out the week today, with geopolitics still likely to remain a key driver for energy markets, while a heavy global data calendar could inject fresh volatility into FX, rates, and equity markets. There are a raft of Flash Services and Manufacturing PMI releases scheduled across all sessions, with numbers due from Japan, the UK, Germany, France, the EU, and the US. The Asian session will again see an early focus on Kiwi markets, with RBNZ Governor Anna Breman set to speak in the morning session, fresh on the heels of Wednesday’s rate update. The London session has an early focus on the UK, with Retail Sales data due out before the PMI numbers hit, but once again the New York session looks set to give us a lively close to the trading week. Canadian Retail Sales (exp. -0.5%, Core -0.1%) are due out early in the day, but these are likely to be overshadowed by big data out of the US in the form of the Advance GDP (exp. 3.0% q/q) and the Core PCE Price Index (exp. +0.3% m/m) numbers. Later in the day, we also have New Home Sales data and updates from Fed members Bostic and Logan; however, expect the PCE data to dominate proceedings, especially if it is off expectations.
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