Inflationary pressures are easing in Japan. Natural gas producers want to stop prices from falling :: InvestMacro

By JustMarkets

On Monday, stock indices gave up early gains and closed lower, consolidating below last week’s record highs. At Monday’s stock market close, the Dow Jones Index (US30) was down 0.16%. The S&P 500 Index (US500) decreased by 0.38%. The NASDAQ Technology Index (US100) closed the day negative 0.13%. Supply-side pressure pushed bond yields higher on Monday and was bearish for stocks.

In extended trading, Zoom Video (ZM) shares jumped by 10% after beating revenue and earnings expectations, while Unity Software fell by 18% after reporting weak financial guidance.

This week, investor attention is focused on PCE inflation data and Federal Reserve speeches. PCE and core inflation are expected to show a small monthly increase, but the annual rate is expected to slow. In addition, the second estimate of US GDP growth for Q4 will be released.

Equity markets in Europe traded flat on Monday. German DAX (DE40) rose by 0.02%, French CAC 40 (FR40) fell by 0.46% yesterday, Spanish IBEX 35 (ES35) rose by 0.08%, and British FTSE 100 (UK100) closed negative by 0.29%.

Speaking at the European Parliament, ECB President Christine Lagarde said that the current disinflation process should continue at a pace that could lead to the first rate cut by June, although some favor an earlier approach. Money markets have also reassessed their expectations for the first rate cut by the US Fed from May to June. With the ECB generally following the US Fed’s lead, investors should not expect the first rate cut from the ECB until summer.

Silver retreated yesterday amid the negative impact of iron ore prices falling to a 4-month low on Monday on concerns about Chinese demand for industrial metals.

WTI crude futures are holding above $77 a barrel on Tuesday after jumping more than 1% in the previous session, helped by ongoing supply disruptions that have raised supply concerns. Houthi rebels in Yemen continued attacks on Red Sea vessels, driving up freight costs and delaying deliveries. Meanwhile, in the United States, analysts noted strong demand from refineries, benefiting from high margins. Refineries with high profit margins buy more barrels, and foreign buyers favor US crude to avoid Red Sea transportation problems.

Natural gas prices rose moderately on Monday thanks to some coverage of short positions by funds ahead of Tuesday’s March futures contract expiration. Also, it was reported last week that major shale gas producers will cut production due to extremely low prices, and Chesapeake Energy will be the first to do so. The low prices result from weak demand, so producers are beginning to take action to stop the drop in natural gas prices. Seasonally, natural gas has a positive March-April performance, so there is plenty of upside for prices in the coming weeks.

Asian markets traded flat yesterday. Japan’s Nikkei 225 (JP225) jumped by 0.35% yesterday, China’s FTSE China A50 (CHA50) declined 1.64% on Monday, Hong Kong’s Hang Seng (HK50) ended the day down 0.54%, and Australia’s ASX 200 (AU200) closed positive 0.12%.

Japan’s core consumer price index, which excludes fresh food but includes the cost of fuel, was 2% in January 2024, slowing from 2.3% in December and the lowest since March 2022. Still, the January figure was above market forecasts of 1.8%. Japan’s core inflation is now within the central bank’s 2% target. This eases pressure on the BoJ to raise interest rates after months of speculation that rising wages and prices would force it to do so. The BoJ’s ultra-confident stance has been a key fulcrum for Japanese markets in the past year as rising interest rates in the rest of the world and a weakening yen have sent foreign investors rushing into local equities.

While additional stimulus measures from Beijing helped Chinese markets bounce off multi-year lows, markets are now waiting for signs of real improvement in the economy. Purchasing managers’ index data for February is due out later this week and is expected to provide clearer signals on the health of Asia’s largest economy.

S&P 500 (US500) 5,069.53 −19.27 (−0.38%)

Dow Jones (US30) 39,069.23 −62.30 (−0.16%)

DAX (DE40)  17,423.23 +3.90 (+0.022%)

FTSE 100 (UK100) 7,684.30 −21.98 (−0.29%)

USD Index  103.78 −0.16 (−0.15%)

Important events today:

• – Japan National Core CPI (m/m) at 01:30 (GMT+2);
• – German GfK Consumer Confidence (m/m) at 09:00 (GMT+2);
• – US Durable Goods Orders (m/m) at 15:30 (GMT+2);
• – US CB Consumer Confidence (m/m) at 17:00 (GMT+2).

By JustMarkets

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.