The US inflation report strengthened the US dollar and affected the indices. Switzerland is seeing a sharp decline in inflation :: InvestMacro

By JustMarkets

US stocks fell sharply on Tuesday after releasing a sharper-than-expected inflation report. At Tuesday’s stock market close, the Dow Jones Index (US30) was down 1.35%. The S&P 500 index (US500) was down 1.37%. The NASDAQ Technology Index (US100) closed negative at 1.80%. In the United States, the annual inflation rate eased to 3.1%, beating expectations of 2.9%, while core inflation came in at 3.9% compared to the forecast of 3.7%. Consumer prices rose by 0.3% from the previous month, and core inflation rose by 0.4%, exceeding expectations. The strong inflation report forced investors to revise their expectations for rate cuts by the Federal Reserve in March and May. All key sectors were down, with real estate and technology leading the way as shares of major technology companies such as Microsoft (2.1%), Amazon (2.1%), and Alphabet (1.6%) fell.

Equity markets in Europe were mostly down on Tuesday. Germany’s DAX (DE40) fell by 0.92%, France’s CAC 40 (FR40) decreased by 0.84% yesterday, Spain’s IBEX 35 (ES35) lost 0.59% on Tuesday, and the UK’s FTSE 100 (UK100) closed negative 0.81%.

The ZEW Economic Sentiment Indicator for Germany rose for the seventh consecutive month to 19.9 in February 2024, reaching its highest level in a year and beating market expectations of 17.5 amid hopes that major central banks will start cutting interest rates this year. In addition, German investor morale improved to a one-year high in February, while the assessment of current economic conditions fell to its lowest level since mid-2020. More than two-thirds of respondents expect the ECB to cut interest rates in the next six months due to lower inflation, while nearly three-quarters of respondents predict the US central bank will cut interest rates soon. Swaps put the odds of a 25 bps ECB rate cut at 7% at the next meeting on March 7 and 52% at the April 11 meeting.

The UK unemployment rate for the fourth quarter of 2023 fell to 3.8% from 4.0%. The UK wages rose more than expected in the year’s final quarter, leading investors to cut bets on a rate cut by the Bank of England this year.

The Swiss franc fell to 0.88 per US dollar in February, its lowest in two months, after lower-than-expected inflation data strengthened the case for doves at the Swiss National Bank (SNB). Swiss consumer prices rose 1.3% year-on-year in January, well below market expectations of 1.7% and the lowest in two years, remaining below the SNB’s upper 2% target for the seventh consecutive month. Inflation fell despite repeated calls for stubbornly higher rates as the country scraped electricity subsidies and revised the value-added tax. In turn, this result has raised bets that the SNB may start to cut its benchmark discount rate in the first half of the year, including the possibility of a March cut. The franc was also pressured because the SNB increased its foreign exchange reserves for the second month in a row.

WTI crude oil prices rose to 78 dollars per barrel on Tuesday, hitting a two-week high, as tensions in the Middle East continued to support oil prices. Meanwhile, OPEC maintained its forecasts for sustained growth in global oil demand in 2024 and 2025 and raised its economic growth forecasts for those years, pointing to additional growth potential. In addition, the report noted a 350,000 bpd reduction in OPEC oil production in January following the implementation of a new round of voluntary production cuts by the OPEC+ alliance in the first quarter.

The US natural gas prices fell more than 5.5% to below $1.7/MMBtu, hitting their lowest since July 2020 due to rising production and weak demand. Gas wells pushed production to near-record levels after a sharp cold snap in mid-January.

Asian markets were mostly up on Tuesday. Japan’s Nikkei 225 (JP225) was up 2.89% for the day, China’s FTSE China A50 (CHA50) will not trade for the rest of the week due to Chinese New Year celebrations, Hong Kong’s Hang Seng (HK50) was also not trading yesterday, and Australia’s ASX 200 (AU200) ended the day negative 0.15% on the day.

The sharp fall in the Japanese yen yesterday prompted Japan’s Finance Minister Shun’ichi Suzuki to warn that authorities were closely monitoring the market without confirming whether they would intervene again. Deputy Finance Minister for International Affairs Masato Kanda also said that Japan would take appropriate action in the foreign exchange market if necessary, as the sharp fall of the yen is not suitable for the economy. The country intervened in the foreign exchange market three times in 2022 when the yen fell to a 32-year low of 152 per dollar but has taken no further action since then.

S&P 500 (US500) 4,953.17 −68.67 (−1.37%)

Dow Jones (US30) 38,272.75 −524.63 (−1.35%)

DAX (DE40) 16,880.83 −156.52 (−0.92%)

FTSE 100 (UK100) 7,512.28 −61.41 (−0.81%)

USD Index 104.85 +0.68 (+0.65%)

News feed for 2024.02.14:

• – UK Consumer Price Index (m/m) at 09:00 (GMT+2);
• – UK Producer Price Index (m/m) at 09:00 (GMT+2);
• – Eurozone GDP (q/q) at 12:00 (GMT+2);
• – Eurozone Industrial Production (m/m) at 12:00 (GMT+2);
• – UK BoE Gov Bailey Speaks at 17:00 (GMT+2);
• – US Crude Oil Reserves (w/w) at 17:30 (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.