The financial markets are showing a mixed performance after a tumultuous week. Despite the ups and downs, the day started on a positive note with Shanghai reopening on a high note after the extended Chinese New Year celebrations. However, trading on Wall Street will remain suspended due to the President’s day holiday. The Shanghai market made slight progress, just over half a percentage point, after being closed for more than a week. Meanwhile, Hong Kong’s market dipped by nearly 1%.
Consumer Spending Surges During Chinese New Year
The Chinese Dragon Year began with a significant increase in consumer spending and travel during the holiday period. As reported by China’s Ministry of Culture and Tourism, domestic travel soared during the eight-day Lunar New Year festival with 474 million trips made, an increase of 34% from the previous year and 19% above pre-pandemic levels. This Chinese New Year marked the first in five years not impacted by the COVID-19 pandemic.
Chinese Prime Minister Li Qiang encouraged officials in a government meeting on Sunday to bolster the nation’s confidence and expectations. However, warnings from Washington indicate the United States and its allies will take action if China attempts to mitigate its industrial overcapacity concerns by dumping low-cost goods onto the global markets. Senior Treasury officials revealed that an American delegation expressed these concerns during a recent visit to China, including to Vice Prime Minister He Lifeng, who oversees the economy.
In other Asian markets, Hong Kong showed a decline, Tokyo experienced minor losses, while the yen strengthened by 0.1% against the dollar at 149.95 and Seoul advanced by over 1%. Wall Street futures seem positive, in anticipation of Nvidia’s quarterly report. European futures are also showing progress following a turbulent week.
Speculations Surrounding US Interest Rates
US markets had a challenging start to the previous week after US inflation fell less than expected in January, causing Treasury yields to surge. Then came the announcement of retail sales, which were below expectations but were well-received by the markets. It seems that poor economic performance is being viewed positively in the hope of impending rate cuts. However, over the weekend, the markets began to falter again as the 10-year Treasury yield fell below 4.2% on Thursday and closed the week above 4.3%. This was a reaction to the news that US producer prices in January increased more than expected, indicating that the rate cut may be delayed.
Traders are now 80% confident in a rate cut by June and are betting almost 100% on a reduction in the cost of money by July at the earliest.
Upcoming Data Releases
This week, the ECB will release data on salary negotiations on Tuesday, which could influence future monetary decisions. ECB President Lagarde stated that wage trends would be closely monitored for potential interest rate cuts.
On Wednesday, the PMI indices of the main economies will be published, with a particular focus on the Eurozone, which remains the only one in contraction among the significant areas, both in manufacturing and services. On Friday, the Eurozone will release the Ifo index on German business confidence and the ECB survey on inflation expectations. In the USA, the only significant data will be Thursday’s report on weekly unemployment benefits.
Central banks will also be in focus this week. The Fed and the ECB are set to publish the minutes of their latest meetings on Wednesday and Thursday, respectively, which could provide insights into their future rate decisions. On Wednesday, the Turkish central bank will make its decision on interest rates, which are expected to remain at 45%.
Nvidia’s Quarterly Report Awaited
On the quarterly front, Nvidia’s report on Wednesday is highly anticipated, as it will be released after the markets close and its results could influence the technology sector and potentially the entire price lists in the following days. Experts predict that Treasury yields, which returned to around 4.3% at the end of the last quarter, will continue to rise and could reach 4.5%. This would inevitably have a negative impact on stocks but could be offset by the performance of large stocks, particularly US Big Tech, which are seemingly unaffected by high bond rates. Smaller stocks, however, may suffer due to a potential increase in Treasury rates.
According to experts, the stock markets could continue to rise next week, primarily driven by the performance of large companies. As such, the S&P 500 is expected to continue to set records, even though indices like the Russell 2000, which are more linked to small and medium-sized companies, could experience declines. Meanwhile, the price of oil is falling in Asia today, following an increase on Friday. The WTI future is down 0.59% at $78.72 a barrel, while the Brent contract has dropped by 0.77% to $82.83.
