US Goldilocks Data / ECB Holds / Putin Olive Branch

The term “Goldilocks” has been used to describe yesterday’s economic data out of the US, with fourth quarter GDP surprising to the upside, while the GDP price index missed to the downside. Q4 GDP was much stronger than anticipated, coming in at +3.3%, versus the consensus of +2%, though still well below the 4.9% rate seen in Q3. On the flip side, the GDP price index surprised to the downside, coming in at just +1.5% for Q4, well below the 2.2% estimate and the previous of 3.3%.  

To round it all off, the Fed's favoured measure of inflation, the core personal consumer expenditure (PCE) came in at 2% annualised for the second quarter in a row and in line with estimates. The money markets are currently pricing in a 50/50 chance of a cut in March.  

On this side of the pond, we had the ECB rate decision which, as expected, was left unchanged at its all-time high of 4%. The accompanying statement insisted that the central bank will keep monetary policy restrictive “for as long as necessary” to get the inflation genie back in the bottle. However, as opposed to the Fed, money markets see a near 90% chance of the first ECB rate cut coming in April.  

We also read that Vladimir Putin has used indirect channels to put out “feelers” to the US that he is open to negotiations about ending Russia’s war with Ukraine. The report stated that two people close to the Kremlin say the Russian President is open to discussions about ending the war, and even potentially including future security plans for Ukraine. So, joining NATO?  

Officially, the US has said they are not aware of a “trial balloon” and have seen no sign that Putin is serious about ending the fighting, which has now settled into a deadlock as the conflict approaches its third year.