So, what do we know?
(A forex, index, and commodity market review)
Major international stock indices continue to extend into record territory as investors shrug off concerns about sticky inflation and the global macro events in Ukraine and the Middle East.
Weekly change (amount change and percentage change on the week)
FTSE -26 -0.34%
DAX +334 +0.43%
DOW -70 -0.18%
S&P +45 +0.88%
NASDQ +366 +2.04%
NIKKEI +747 +1.89%
Hang Seng -105 -0.62%
Despite data releases generally missing their mark last week, major indices posted further gains as the process of future interest rate adjustments has run its course. US GDP and consumer sentiment readings and Eurozone CPI all missed consensus but the important Personal Consumption Expenditure data was as expected, +0.4% monthly and 2.4% annualised. The PCE data, as it is referred to, is the preferred measure of inflation used by the Federal Reserve. Analysts expected the fall from 2.6% to 2.4% which now supports expectation for the first rate cut from the Federal Reserve at the June 12th meeting. US and international indices jumped Thursday and Friday as the PCE data soothed concerns that the inflation data might be stronger than the Fed would like.
The Core PCE reading also came in as expected at 2.8% suggesting that the real in-built inflation, which excludes energy and food, is also waning in line with the headline rate. There will be two more monthly readings before the Fed is expected to cut rates which could still trip up the markets.
Tech shares, and the broad S&P500 index, were also boosted last Friday by a further 4% rise in Nvidia’s share price as the AI frenzy and Nvidia’s recent strong Q4 results, pushed Nvidia above the $2 Trln mark. Nvidia has now gained an astonishing 66% since the start of 2024, and that is following a gain of 230% in 2023. A gain like this might be associated with a small cap stock – but Nvidia is the third largest stock in the US!
UK markets remain the stand out under-performer having had a good run the previous week. The UK Budget expectations caused some sectors to tread cautiously as plans were leaked for various cost savings and targeted tax rises, holiday lets and Non-Dom status heavily trailed in the media, so that the chancellor could reward people in work.
EURUSD +0.20 +0.18%
GBPUSD -0.12 -0.09%
USDJPY -0.43 -0.29%
Interest rate expectations continue to dominate foreign exchange pricing. The readjustment in outlook for US interest rates over the past 8 weeks, which has run its course, has resulted in a recovery in the US Dollar. The extent to which other central banks, such as the ECB (reporting this week) and the Bank of England, are expected to cut rates this year is also part of the same theme. The US Dollar was on hold last week as the market awaits the outcome of the ECB policy meeting this Thursday. Any sign of increased hawkishness from the governing council would push the Euro higher.
Gold +48 +2.35%
UK OIL +2.24 +2.77%
US OIL +2.83 +3.70%
Gold jumped last Friday in a delayed reaction to the PCE inflation data released last Thursday. One of the big costs associated with holding Gold is financing costs. Any sign that interest rates could be coming down sooner will help Gold. In addition Gold also continues to reflect the escalating tensions in the Middle East and the stalled talks between Hamas and Israel designed to bring about a 6-week ceasefire.
Oil was also firmer last week, jumping about 3% due to the same Middle East tensions and expectations of an extension to the OPEC+ production cuts. Last night Opec+ duly announced a further extension to their production cuts which were due to expire at the end of this month. The effect on the oil price is muted following the rally last week in anticipating of such a move.
What don’t we know….yet?
This week’s data and events to watch out for.
A busy week with the first major central bank rate policy decision this month from the ECB plus US Non-farm employment report and the Chair of the Federal Reserve testifying over two days to Congress about the Semi-Annual Monetary Policy Report.
Monday
Switzerland CPI inflation report. Expected at +0.5% - the largest month on month gain since March 2023. CHF sensitive.
Tuesday
China Caixin Services PMI. Recovering.
Japan BoJ Governor Ueda speaking at the FIN/SUM 2024, in Tokyo. JPY especially sensitive.
US ISM Services PMI. Expected to dip slightly from last month’s 53.4. USD sensitive.
US Super Tuesday primaries in the US, as the Republican party looks set to chose Trump as their nomination for the Presidential Election in November. Trump is currently polling 47% versus 45% for Biden in the Presidential race.
Wednesday
UK Construction PMI data. The construction sector has struggled since H2 2022. Edging towards some sort of a recovery.
UK Spring Budget announcement. Chancellor is expected to deliver his speech from around 12:30pm which usually lasts an hour. GBP and UK assets very sensitive to the details announced.
US ADP employment report. Private sector take on the US employment picture. More volatile than the official data published Friday. USD and US assets sensitive.
Canada Bank of Canada policy announcement. No change in rates expected, especially ahead of the Federal Reserve decision later this month. CAD sensitive.
US Jay Powell testifies about the Semi-Annual Monetary Policy Report to Congress. Day one of two-day testimony. Any further insights into Fed thinking re interest rates always helpful. USD and US assets sensitive.
Thursday
Eurozone ECB interest rate decision. No change expected. Market focus will be on any clues from the governing council about the timing of future rate cuts. EURO and Eurozone assets very sensitive to the announcement and press conference at 1.45pm (UK time).
US Day two of Jay Powell testimony to Congress about the Semi-Annual Monetary Policy Report.
US FOMC Member Mester speaking at the Virtual European Economics and Financial Centre's Distinguished Speaker Series about the economic outlook. Could be interesting with audience Q&A at the end.
Friday
US Non-farm employment change. A dip from last month’s extraordinary number of new jobs. Consensus of 190K new jobs, unemployment rate at 3.7% and average hourly earnings at 0.2%. US Dollar and US assets very sensitive to the release.
