Houthi attacks continue in the Red Sea. Inflationary pressures are easing in the US

By JustMarkets

At Friday’s close, the Dow Jones Index (US30) was up by 0.16% (+0.50% for the week) and had risen to a new record high. The S&P 500 Index (US500) decreased by 0.07% on Friday (-0.07% for the week). The NASDAQ Technology Index (US100) closed Friday negative by 0.36% (+0.40% for the week). Friday’s economic reports on personal spending for December and home sales for December were better than expected, and price pressures eased after the core PCE deflator for December — the Fed’s preferred measure of inflation — showed the slowest pace in 2 years.

The US core PCE deflator for December eased to 2.9% y/y from 3.2% y/y in November, better than expectations of 3.0% y/y. US home sales for December rose by 8.3% m/m, beating expectations of 2.0% m/m and the largest increase in 3 years. Currently, markets are discounting the odds of a 25 bps rate cut of 3% at the next FOMC meeting on January 30-31 and 48% for the same 25 bps rate cut at the March 19-20 meeting.

Intel (INTC) shares fell by more than 11%, topping the S&P 500 (US500), Dow Jones Industrials (US30), and Nasdaq 100 (US100) list of losers after the company projected adjusted first-quarter revenue of $12.2-13.2 billion well below the consensus forecast of $14.25 billion. American Express (AXP) is up more than 7%, leading the S&P 500 (US500) and Dow Jones Industrials (US30), after the company projected 2024 EPS of $12.65-$13.15, which was stronger than the consensus forecast of $12.40.

Equity markets in Europe were mostly up on Friday. The German DAX (DE40) rose by 0.32% (+1.66% for the week), the French CAC 40 (FR40) gained 2.28% (+2.66% for the week) on Friday, the Spanish IBEX 35 (ES35) added 0.20% (+0.22% for the week) on Friday, and the British FTSE 100 (UK100) closed positive by 1.40% (+2.32% for the week).

The German February GfK Consumer Confidence Index unexpectedly fell by 4.3 to an 11-month low of negative 29.7, weaker than expectations of a rise to negative 24.6. Eurozone M3 Money Supply for December unexpectedly rose by 0.1% y/y, stronger than expectations of negative 0.7% y/y and the first increase in six months.

ECB Governing Council spokesman Kazaks said on Friday that while interest rates should start to fall, in the absence of any major shocks, the ECB’s biggest mistake could be premature easing, which would allow inflation to bounce back. Swaps put the odds of a 25 bps ECB rate cut at the next meeting on March 7 at 18% and at the April 11 meeting at 87%.

WTI crude futures jumped to $79 a barrel on Monday, hitting their highest level in two months, as a Houthi attack on a Trafigura fuel tanker in the Red Sea heightened fears of further supply disruptions. The oil tanker was hit by a missile off the coast of Yemen on Friday, prompting commodities trader Trafigura to reassess the security risk of further Red Sea voyages. OPEC and its allies will meet online on February 1, and the group is not expected to adopt changes to its production plan.

Asian markets traded mixed last week. Japan’s Nikkei 225 (JP225) fell by 1.50% for the week, China’s FTSE China A50 (CHA50) jumped 2.16% over 5 trading days, Hong Kong’s Hang Seng (HK50) ended the week up by 3.93%, and Australia’s ASX 200 (AU200) ended the week positive by 2.84%.

The December Bank of Japan (BoJ) meeting minutes showed that policymakers actively discussed the terms of the gradual withdrawal of stimulus and agreed to deepen the discussion on the appropriate pace of future interest rate hikes. The minutes were released after the BoJ said on Tuesday it was increasingly confident that conditions for phasing out its huge stimulus measures were becoming more favorable, suggesting it would soon take short-term interest rates out of negative territory. The Bank of Japan may retain control over bond yields as a loose basis even after it takes short-term rates out of negative territory, according to the December minutes.

New Zealand’s trade deficit narrowed to USD 0.323 billion in December 2023 from USD 0.651 billion in the corresponding month of the previous year. Exports declined by 8.7% y/y to US$5.9 billion. Among major trading partners, exports declined to China (-16%), Australia (-0.8%), the US (-4.6%), the EU (-20%) and Japan (-17%). At the same time, imports fell by 13% to $6.3 billion. Imports from China (-12%), EU (-14%), Australia (-9.8%), US (-40%) and South Korea (-113%) declined. On the other hand, purchases of oil and petroleum products increased by 115%.

S&P 500 (US500) 4,890.97 −3.19 (−0.07%)

Dow Jones (US30) 38,109.43 +60.30 (+0.16%)

DAX (DE40) 6,961.39 +54.47 (+0.32%)

FTSE 100 (UK100) 7,635.09 +105.36 (+1.40%)

USD Index  103.47 +0.04 (+0.04%)

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.