LCG: Volatility jumps as Facebook sinks – By Japer Lawler, Head of Research.

 

05:45, Tuesday 20th March, 2018.
By LCG Research

We are only one day into the trading week and volatility has already been remarkable; Data mismanagement concerns at Facebook and continued upheaval at the White House has sent the VIX back over 20 for the first time in almost two weeks and Wall Street tumbling overnight.

Facebook sinks 7% dragging tech stocks lower
A data scandal at Facebook in addition to a possible 3% revenue tax by the EU on large techs, saw Facebook shares dump 6.8%, wiping $37 billion off its value in its worst trading day in 4 years. Concerns over data mismanagement at the world’s largest social media firm weighed on sentiment, driving technology stock across the board lower by some 2.5%. This is not the first time that Facebook have been caught being lax over their controls; both users and regulators are going to want this to be the last or at least see the firm go to extraordinary lengths to prevent incidences like this happening again. The next few weeks will be crucial as to how Facebook responds to the allegation. Increased regulations have the potential to hit advertising, reducing the principal source of income for the tech giant.

The Dow wiped out its year to date gains, diving 330 points, the S&P closed 1.4% lower whilst the Nasdaq closed 1.8% lower. All major US indices closed off their lows but that wasn’t sufficient to support trading in Asia -Pacific, which experienced large losses early on. However, it has aided European bourses in heading towards a higher start on the open.

Inflation due to tick lower
The first of the two key releases on this week’s U.K. calendar is scheduled for this morning. CPI is forecast to have declined to 2.8% year on year in March, down from 3% the previous month. Core inflation is expected to have dipped from 2.7% in February to 2.5% this month.

Inflation has been a headache for the Bank of England, particularly over the past 5 months where it has remained consistently at 3% or higher. The BoE have been forecasting that inflation will work its way out of the system this year and we could start to see that this month.

Volatility in GBP/USD has already had a notable start to the week, with news of a Brexit transition deal agreement bringing the bulls back in and sending the pair comfortably above the key psychological level of $1.40. Today’s CPI read is not an isolated event, it leads to the BoE rate decision on Thursday, with a widely expected rate hike from the Fed in between on Wednesday. This is going to be a complicated couple of days for traders to navigate, with most looking to remain cautious in the days ahead, not wanting to be caught over extended in one direction of the other.

The BoE started to guide market expectation towards a May rate hike. Now with a Brexit transition deal in place, some Brexit headwinds have eased. Should inflation surprise to the upside, the BoE could consider conditions more supportive of a rate rise than just 24 hours ago. GBP/USD will need to break through resistance at $1.4070 before extending gains towards $1.41 and then $1.4150.

Opening calls
FTSE to open 38 points higher at 7080
DAX to open 46 points higher at 12263
CAC to open 14 points higher at 5236

Financial & Political Commentary

 

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About the author

Jasper delivers regular commentary, seminars and webinars on market news, trading analysis, strategy and psychology. He is regularly interviewed by BBC News, Bloomberg, CNBC and Sky News, and has featured in The Times, Guardian and Daily Telegraph. Jasper hosts a weekly charting analysis webinar. He is qualified as a Chartered Market Technician (CMT) with the Market Technician Association, and has a degree in Finance and Economics.