The US stock indices remain under pressure. Inflation is on the rise in Europe

By JustMarkets

The US CB consumer confidence index declined for the second month in a row, a sign that Americans are becoming more pessimistic about economic prospects amid persistently high inflation and rapidly rising interest rates. Looking at the individual components of the report, the current situation index, based on business and labor market assessments, rose to 152.8 from 151.1. Still, the expectation indicator, which tracks short-term income prospects, the business environment, and job opportunities, fell sharply to 69.7 from 76.00. Over the past few weeks, markets have overestimated the Fed’s monetary policy outlook upward because of solid economic data, but expectations could soon change if falling confidence causes a significant decline in consumer spending.

As the stock market closed on Tuesday, the Dow Jones Index (US30) decreased by 0.71%, and the S&P 500 Index (US500) lost 0.30%. NASDAQ Technology Index (US100) closed negative by 0.10%. Economists say the US stock indices seem overvalued based on current rates. Therefore, the path of least resistance is likely to be further reductions. Monetary policy operates with a long and variable lag, so the outlook may continue to deteriorate as the Fed’s cumulative tightening affects the real economy.

Equity markets in Europe were mostly down yesterday. Germany’s DAX (DE30) decreased by 0.11%, France’s CAC 40 (FR40) lost 0.38%, Spain’s IBEX 35 (ES35) added 0.90%, Britain’s FTSE 100 (UK100) closed down by 0.74%.

The latest data showed that inflation in Europe is starting to accelerate again. In France, the consumer price index rose from 6% to 6.2% y/y. In Spain, CPI also jumped from 5.9% to 6.1% year-on-year. Inflationary pressures remain, which means the ECB will probably not slow down the pace of tightening. The main inflation figure for the Eurozone will be published tomorrow.

British Prime Minister Rishi Sunak expressed his optimism about the new version of the Northern Ireland Protocol. This deal will regulate the flow of goods from England to Northern Ireland. The new version proposes a green band for goods remaining in Northern Ireland and a red band for goods destined for Ireland, the EU, and the rest of the EU, which will naturally be subject to stricter inspections.

Despite the rise in gold in the last two days, analysts are confident that the jump in government bond yields will prevent gold and silver from showing a significant and lasting recovery. The precious metals are protective assets at a time of rising inflation but not at a time of monetary tightening.

In the oil market, the strong rebound in US inventories in the previous weeks continues to constrain the rise in oil prices. Investors are also worried about lower demand due to falling economic activity in the face of higher global interest rates imposed to fight inflation. On Tuesday, the US sold an additional 26 million barrels of crude oil from its Strategic Petroleum Reserve.

Asian markets traded flat yesterday. Japan’s Nikkei 225 (JP225) gained 0.08% on the day, China’s FTSE China A50 (CHA50) gained 0.39%, Hong Kong’s Hang Seng (HK50) ended the day down by 0.79%, India’s NIFTY 50 (IND50) fell by 0.51%, and Australia’s S&P/ASX 200 (AU200) was positive by 0.47%.

Recent comments from the new deputy governor of the Bank of Japan, Shinya Uchida, and the current candidate for governor of the Bank of Japan, Kazuo Ueda, set a “dovish” tone in the testimony before the upper house of the Japanese parliament. These comments put an end to rumors that the new BOJ management will change monetary policy in the near future. As for economic data from Japan: Industrial production showed its first decline in 3 months, with output falling by 4.9% m/m in January. Retail sales increased by 1.9% m/m, with clothing and automobiles making the largest contribution.

S&P 500 (F) (US500) 3,970.15 −12.09 (−0.30%)

Dow Jones (US30)32,656.70 −232.39 (−0.71%)

DAX (DE40) 15,365.14 −16.29 (−0.11%)

FTSE 100 (UK100) 7,876.28 −58.83 (−0.74%)

USD Index 104.95 +0.28 (+0.27%)

• – Australia GDP (q/q) at 02:30 (GMT+2);
• – Australia Consumer Price Index (m/m) at 02:30 (GMT+2);
• – Japan Manufacturing PMI (m/m) at 02:30 (GMT+2);
• – China Manufacturing PMI (m/m) at 03:30 (GMT+2);
• – China Non-Manufacturing PMI (m/m) at 03:30 (GMT+2);
• – German Retail Sales (m/m) at 09:00 (GMT+2);
• – Switzerland Retail Sales (m/m) at 09:30 (GMT+2);
• – Switzerland Manufacturing PMI (m/m) at 10:30 (GMT+2);
• – German Manufacturing PMI (m/m) at 10:55 (GMT+2);
• – German Unemployment Rate (m/m) at 10:55 (GMT+2);
• – Eurozone Manufacturing PMI (m/m) at 11:00 (GMT+2);
• – UK Manufacturing PMI (m/m) at 11:30 (GMT+2);
• – UK BoE Gov Bailey Speaks at 12:00 (GMT+2);
• – Canada Manufacturing PMI (m/m) at 16:30 (GMT+2);
• – US ISM Manufacturing PMI (m/m) 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.