Rising stock indices overshadowed hawkish speeches by US Fed policymakers. Canada is seeing a drop in retail sales :: InvestMacro

By JustMarkets

At the close of the stock market yesterday, the Dow Jones Index (US30) added 1.18%. The S&P 500 Index (US500) jumped 2.11% yesterday. The NASDAQ Technology Index (US100) closed positively at 2.96%. The S&P 500 (US500) and Dow Jones (US30) set new record highs, while the NASDAQ (US100) set a weekly high. Nvidia (NVDA) rose more than 16% to a record high on Thursday, leading a rally in the chip market after its quarterly earnings results released on Wednesday showed an explosive rise in demand for its artificial intelligence computing hardware.

Hawkish comments from policymakers failed to stop the indices from rising yesterday. Fed spokesman Christopher Waller said Thursday that the Fed should hold off on cutting rates for at least a couple more months to ensure the January inflation report was a fluke and that the Fed is still moving toward its inflation target. He added that acting too soon could squander the central bank’s gains in fighting inflation and cause significant damage to the economy. Fed Vice Chairman Jefferson agreed. He said that the Fed should be on guard against cutting interest rates too much in response to falling inflation because “excessive easing could cause progress in restoring price stability to stall or backslide. In addition, Philadelphia Fed President Harker cautioned against expecting interest rate cuts “right now and immediately” and said the biggest risk is cutting rates too quickly. Markets estimate the odds of a 25 bps rate cut at 6% for the March 19-20 FOMC meeting and 29% for the April 30-May 1 meeting.

Today, in the US, the minutes from the January FOMC meeting will be released. Investors will be looking for clues on the timing of the first-rate cut. Traders and investors have heard several Fed officials speak since the January meeting, and most preached patience with rates, warning against a premature cut, citing the strength of the US economy. If the minutes strike the same tone, given that the market is still pricing four rate cuts this year while the Fed has signaled only three, the dollar could get a boost. This would hurt stock indices and precious metals.

The latest economic data showed that US weekly jobless claims unexpectedly fell by 12,000 to a 5-week low of 201,000, indicating a strengthening labor market versus expectations of a rise to 216,000. The S&P Manufacturing PMI for February rose by 0.8 to a 17-month high of 51.5, stronger than expectations of no change at 50.7. US home sales for January rose by 3.1% to a 5-month high of 4.00 million, stronger than expectations of 3.97 million.

Canadian consumers sharply reduced their spending in January following stronger-than-expected retail purchases late last year. According to Statistics Canada’s preliminary estimate released Thursday, retail receipts fell by 0.4%, the biggest decline since March 2023. This followed a 0.9% jump in December. While this data points to strong consumer spending at the end of last year, the sharp decline in January suggests some weakness, especially amid rapid growth in Canada’s population due to immigration. The slowdown in retail consumption is expected to continue as more households renew their mortgages at higher interest rates this year.

Equity markets in Europe were mostly up yesterday. Germany’s DAX (DE40) rose by 1.47%, France’s CAC 40 (FR40) gained 1.27% yesterday, Spain’s IBEX 35 (ES35) jumped by 0.31% on Thursday, and the UK’s FTSE 100 (UK100) closed positive 0.29%.

Eurozone January CPI declined to 2.8% y/y from 2.9% y/y in December, matching expectations. Core CPI for January was 3.3% y/y, unchanged from December, which was in line with expectations. The report on the ECB’s January 24-25 meeting was hawkish as policymakers said the risk of cutting interest rates too early is more dangerous than cutting too late. Swaps estimate the odds of a 25 bps ECB rate cut at 3% at the next meeting on March 7 and 29% at the April 11 meeting.

Germany’s economy contracted by 0.3% in the final quarter of 2023 after two consecutive periods of stagnation. Europe’s largest economy has been hit by rising prices, higher borrowing costs, and weak external demand, especially in the manufacturing and construction sectors.

Asian markets also rose yesterday. Japan’s Nikkei 225 (JP225) gained 2.19% for the day, China’s FTSE China A50 (CHA50) added 0.50%, Hong Kong’s Hang Seng (HK50) ended Thursday up 1.45%, and Australia’s ASX 200 (AU200) ended the day positive 0.04%.

Singapore’s annual inflation rate unexpectedly fell to 2.9% in January 2024 from 3.7% in December, well below market forecasts of 3.8%. This marked the lowest inflation rate since September 2021.

Malaysia’s annual inflation rate in January 2024 stood at 1.5%, unchanged for the third consecutive month and at its lowest level since February 2021. The data was slightly below market forecasts of 1.6% amid declines in the cost of clothing (0.2% vs. unchanged in December) and communication services (2.4% vs. 3.7%). At the same time, prices continued to rise for food (2.0% vs. 2.3%), housing (2.0% vs. 1.6%), and transportation (0.7% vs. 0.3%).

S&P 500 (US500) 4,981.80 +6.29 (+0.13%)

Dow Jones (US30) 38,612.24 +48.44 (+0.13%)

DAX (DE40)  17,118.12 +49.69 (+0.29%)

FTSE 100 (UK100) 7,662.51 −56.70 (−0.73%)

USD Index  103.87 −0.13 (−0.13%)

Important events today:

• – US FOMC Member Cook Speaks at 00:00 (GMT+2);
• – US FOMC Member Kashkari Speaks at 00:00 (GMT+2);
• – Singapore Consumer Price Index (m/m) at 07:00 (GMT+2);
• – German GDP (q/q) at 09:00 (GMT+2);
• – Switzerland Employment Rate (m/m) at 09:30 (GMT+2);
• – German IFO Business Climate (m/m) at 11:00 (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.