Inflation data in the Eurozone is in the spotlight today. Geopolitical tensions in the world are rising again

February 23, 2023

The minutes of the Federal Reserve’s February meeting contained no new hawkish statements but added to expectations that further interest rate hikes are necessary to control inflation. 10-year Treasury yields closed near their daily highs after the minutes were released, sending the dollar index higher and stock indices lower. The Dow Jones Index (US30) decreased by 0.26%, and the S&P 500 Index (US500) fell by 0.16% on Wednesday at the close of the stock market. The NASDAQ Technology Index (US100) gained 0.13%. A stronger-than-expected earnings outlook from Nvidia helped tech stocks, especially chipmakers.

Federal Reserve Bank of St. Louis President James Bullard said the US economy has been more resilient than expected and reiterated his call to keep raising interest rates. The main goal is to raise the rate above 5%. For monetary policy, this means that the final rate could be set at around 5.375% this summer and remain at that level for some time until there is sufficient evidence that inflationary forces are weakening on a sustained basis.

According to analysts, the outlook for technology stocks is limited, especially as US interest rates are set to rise even further. Chipmakers will face a potential slowdown in demand this year as global companies cut back on spending because of recession fears. Today, investors will focus their attention on a revision of US fourth-quarter GDP data. A strong US economy will give the Fed more room to raise interest rates further.

According to JPMorgan strategists, it is too early to talk about a recession after the Federal Reserve’s aggressive campaign, especially since the impact of monetary policy on the economy may have a lag of one to two years.

Equity markets in Europe were mostly down yesterday. German DAX (DE30) gained 0.02%, French CAC 40 (FR40) was 0.13% lower, Spanish IBEX 35 (ES35) decreased by 0.91%, and British FTSE 100 (UK100) was 0.59% lower.

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Eurozone’s inflation data will be released today. Consumer prices are expected to remain flat, but surprises are possible. Lower inflation may temper the ECB’s aggressive tone at the May meeting (in March, a 0.5% increase is already priced in). A rise in inflation, on the other hand, will only strengthen the ECB’s hawkish bias in the coming months, which may give support to the euro.

Moscow plans to cut oil exports from its Western ports by 25% in March compared to the previous month in order to boost oil prices. The move is expected to result in a deeper supply cut than 500,000 barrels. According to strategists, rising US inventories combined with the planned sale of 26 million barrels from the US Strategic Petroleum Reserve point to a potential supply glut, which is expected to limit any potential rise in crude oil prices.

Geopolitical tensions around the world are rising again. Russia has withdrawn from an important nuclear agreement that limited nuclear capabilities. North Korea plans to test intercontinental ballistic missiles in response to planned military exercises by the United States and South Korea. China and the United States are blaming each other over the “ballooning” saga.

Asian markets mostly fell yesterday. Japan’s Nikkei 225 (JP225) decreased by 1.34%, China’s FTSE China A50 (CHA50) lost 1.11% yesterday, Hong Kong’s Hang Seng (HK50) ended the day down by 0.51%, India’s NIFTY 50 (IND50) fell by 1.53%, and Australia’s S&P/ASX 200 (AU200) ended the day slightly negative by 0.30%.

Singapore’s annualized inflation rate rose from 6.5% to 6.6%. Core consumer prices, which exclude energy and food, rose from 5.1% to 5.5%. Price pressures remain elevated, largely due to Singapore’s heavy reliance on food and fuel imports. The Monetary Authority of Singapore (MAS) predicts that inflation will remain high in the coming months amid high import costs, labor market shortages, and strong local demand.

S&P 500 (F) (US500) 3,991.05 −6.29 (−0.16%)

Dow Jones (US30)33,045.09 −84.50 (−0.26%)

DAX (DE40) 15,399.89 +2.27 (+0.015%)

FTSE 100 (UK100) 7,930.63 −47.12 (−0.59%)

USD Index 104.53 +0.36 (+0.34%)

Important events for today:

– US FOMC Member Williams Speaks at 01:30 (GMT+2);
– Singapore Consumer Price Index (m/m) at 07:00 (GMT+2);
– Eurozone Consumer Price Index (m/m) at 12:00 (GMT+2);
– US Initial Jobless Claims (w/w) at 15:30 (GMT+2);
– US GDP (q/q) at 15:30 (GMT+2);
– US Natural Gas Reserves (w/w) at 17:30 (GMT+2).
– US FOMC Member Bostic Speaks at 17:50 (GMT+2);
– US Crude Oil Reserves (w/w) at 18:00 (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.

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Inflation data in the Eurozone is in the spotlight today. Geopolitical tensions in the world are rising again