The Week Ahead
The key event for markets last week was the US CPI report: expectations were for an ease in price pressures, particularly in the headline figure. January’s headline CPI report was hotter-than-expected with the headline rising 0.3%mom (exp. 0.2%), and 3.1%yoy (exp. 2.9% prev. 3.4%). Core prices also rose, 0.4%mom (exp. 0.3%), and 3.9%yoy (exp. 3.7%, prev. 3.9%). We have seen higher-than-expected readings from the previous two January prints, so an upside surprise is not unusual. The readings have reinforced that the Fed will not look to cut in March. Next, the retail sales figures, watched closely by the Fed, hugely disappointed, falling 0.4%, against expectations for 0.2%. Industrial production also disappointed to the downside, as did housing starts. We ended the week with US PPI prints, which became apparently more important to the market, also increasing above forecasts. The prelim. Uni. of Michigan inflation forecasts were then marginally higher than expected at 3% for the 1-year, and the 5–10 year forecast is 2.9%. The mixed data saw the futures market’s rate expectations swing about, closing with a 60% chance of a cut in June. We are not so much fixated on the timing, rather the trajectory or rates, and as bond holders, we will continue to enjoy the higher yields for longer than initially expected.
In terms of market moves, the yield on the 10-year UST closed 11 bps higher at 4.28%. Meanwhile, although the S&P Index hit a new high on Thursday, it pared gains on Friday, closing 0.42% lower on the week. The dollar held onto marginal gains; the DXY Index was up 0.16%. Oil enjoyed a further 1.56% jump, to $83.47pb.
Elsewhere, China's "holiday economy" saw a major surge this Chinese New Year, fuelled by an extended 2024 Spring Festival vacation and pent-up demand after muted celebrations during previous pandemic-era years. These drivers spurred strong expansion in both Spring Festival travel and spending. Over the weekend, against some market expectations, China held its 1-year MLF at 2.5%, while supporting the financial system with a CNY 500bn cash injection. We heard from the nation’s Premier, Li Qiang, who over the weekend urged for “pragmatic and forceful” action to boost confidence in the economy, amid deflationary concerns, weakness in the property sector and subdued business confidence.
In a holiday shortened week (as the US is shut today for Presidents’ Day), we have the Fed and ECB minutes, S&P Global PMI prints, and a host of corporate earnings, including Walmart and Barclays (Tuesday), and NVIDIA (Wednesday). The third Saudi Capital and Market Forum takes place over the next couple of days. Eurozone consumer confidence may garner some interest on Wednesday, and later we have the Fed minutes, which we assume will be largely ignored following the hotter CPI and PPI prints for January. The BoE’s Dhingra and Fed’s Bostic speak on Wednesday, and G-20 foreign ministers meet Wednesday - Thursday. S&P Global PMI prints for the Eurozone and UK hit the screens on Thursday, and we have the ECB minutes. The Fed’s Cook and Kashkari appear at startup events, and we will also hear from the BoE’s Green. China’s property prices will be watched closely on Friday morning, as will Germany’s GDP print. Later we have the ECB’s 1- and 3-year inflation expectations survey, and we will hear from the central bank’s Schnabel.
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