US Inflation Data Eagerly Anticipated by Markets

US Inflation Data Eagerly Anticipated by Markets

The financial markets are currently in a state of uncertainty as they await the day’s data regarding US inflation. Despite this, American central bankers are maintaining that cuts to the first rate are not imminent. Michelle Bowman, the governor of the Fed board, has stated that he does not anticipate the institution will cut rates “in the immediate future”. He argues that restrictive monetary policy measures are necessary to prevent inflation from falling.

The consumer price index for the US in January is predicted to demonstrate a slowdown in price growth in the world’s largest economy on both an annual and monthly basis. Meanwhile, the markets in mainland China, Hong Kong, and Taiwan are still closed due to the Lunar New Year holidays. Trading in Shanghai will not recommence until February 19th, while Hong Kong will reopen tomorrow.

Recent Developments on Wall Street

Wall Street saw a minor retreat in futures following yesterday’s events where the S&P 500 reached a new record high of over 5,000 points before closing at -0.06%. The Dow Jones increased to +0.33% and Nvidia surpassed Amazon in market value on the Nasdaq. The technology index reached a new high before turning negative and closing at -0.3%. Over the last four months, companies with a high exposure to AI have been leading a bull market in New York. In yesterday’s equity market, Diamondbank Energy saw a nearly 10% increase after purchasing private natural resources company Endeavor Energy for $26 billion. APA Corporation, Schlumberger, and EQT Corporation also saw a rise of about 2%, contributing to the overall rise in energy stocks.

Companies like Nike (+2.59%), Goldman Sachs (+2.25%), and Intel (+1.66%) performed well, while Microsoft (-1.26%) and Apple (-0.90%) did not fare as well. This week, over 60 companies from the S&P 500 Index will reveal their quarterly results, which could provide valuable insights into the state of US consumers. On the bond front, the 10-year yield rose to 4.18% and the 2-year yield increased to 4.5% before retracing to 4.48%. The probability of the Fed cutting rates in March also decreased, along with expectations of rate reductions in May.

A Dovish Bank of Japan

In Asia, the Tokyo Stock Exchange has reached a 34-year high thanks to strong results from Tokyo Electron and investment firm SoftBank, which saw increases of over 12% and almost 6%, respectively. Additionally, the Deputy Governor of the Bank of Japan, Shinichi Uchida, indicated that while the BOJ will raise interest rates this year, it will likely do so at a slow pace. This suggests a continuation of accommodative monetary conditions for local stocks. The prospect of relatively low Japanese interest rates, following a series of dovish signals from the BOJ, has been a key factor in the Nikkei’s impressive gains over the past two years.

In Europe, futures on the EuroStoxx 50 have seen little movement after European stock markets closed on a high, the best since the start of 2022. They are now waiting for data on US and UK inflation, set to be released this week. The ECB’s chief economist, Philip Lane, and Italy’s Paolo Cipollone also spoke yesterday. Lane noted that rising interest rates in the euro area have increased foreign investors’ interest in euro area debt securities. Cipollone emphasized the importance of strengthening Europe’s resilience to external, particularly geopolitical, challenges and the resulting economic shocks.

Tomorrow, the Vice President of the ECB, Luis de Guindos, will speak. Christine Lagarde will speak on Thursday, and Isabel Schnabel, the German member of the ECB executive, will speak in Florence on Friday. Today, in addition to US inflation data, UK labour market data will be released. Tomorrow, British inflation data will be released, potentially impacting expectations of cuts by the BoE, which have significantly reduced in the last month. US retail sales for January, set to be released on Thursday, will also be important in assessing the state of consumption at the start of the year, following strong growth at the end of 2023. Production price data and the related revision of the historical series should also be monitored, as some components of the data are included in the calculation of the PCE deflator, the inflation measure monitored by the Fed.

Vincenzo Bova, a strategist at MPS, commented that everything this week will be dependent on the data on US inflation. He believes that only a significant slowdown in inflation, particularly in the service sector, will change the Fed’s perspective. Meanwhile, in Asia, the price of oil is seeing a slight increase, with Brent futures above $82 and WTI futures above $77 per barrel.