The Bank of Canada kept rates unchanged and maintained its dovish bias. The ECB will also keep all policy settings unchanged today

March 7, 2024

As of Wednesday’s stock market close, the Dow Jones Index (US30) was up 0.20%, the S&P 500 Index (US500) added 0.51%, and the NASDAQ Technology Index (US100) closed positive 0.58%.

Fed Chairman Powell said in front of Congress that it would likely be appropriate to begin reducing borrowing costs at some point this year. Still, the committee does not expect it will be appropriate to reduce the target range for the federal funds rate until it has more confidence that inflation is moving steadily toward 2%.

The latest economic data showed that US job openings for January, according to JOLTS, fell by 26,000 to 8.863 million, indicating a slight cooling in the labor market. Investors now await the main Nonfarm Payrolls report tomorrow.

Palantir (PLTR) closed higher by more than 9% after receiving a $178.4 million contract from the US Army to develop and produce ten prototype ground stations that use artificial intelligence and machine learning to process target information from space, airborne and ground sensors. JD.com (JD) closed higher by more than 16% after reporting fourth-quarter sales of ¥306.1 billion ($42.6 billion), beating the consensus forecast of ¥300 billion, and initiating a $3 billion share repurchase program. Hewlett Packard Enterprise (HPE) closed higher by more than 3% amid strong demand for the company’s artificial intelligence-focused servers. Orders for these servers totaled $3 billion, up $500 million from the last quarter.

At its March meeting, the Bank of Canada (BoC) kept its overnight rate target at 5%. It pledged to continue normalizing the bank’s balance sheet as policymakers remain concerned about risks to the inflation outlook. The bank said it would maintain its quantitative tightening policy until a further weakening in core inflation. The latest data showed that CPI inflation eased to 2.9% in January, but on an annualized and three-month basis, core inflation was from 3% to 3.5%. Policymakers forecast inflation to remain near 3% in the first half of this year and then gradually decline. The bank also noted that GDP growth remains weak and below potential, and employment continues to grow more slowly amid signs that wage pressures may be easing. At the press conference, Bank Governor Macklem said it was too early to consider cutting rates as more time is needed to ensure inflation falls to the 2% target.

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Equity markets in Europe rallied yesterday. Germany’s DAX (DE40) rose by 0.10%, France’s CAC 40 (FR40) gained 0.28%, Spain’s IBEX 35 (ES35) increased by 0.79% on Wednesday, and the UK’s FTSE 100 (UK100) closed positive 0.43%.

Eurozone retail sales for January rose by 0.1% m/m, weaker than expectations of 0.2% m/m. German trade data was better than expected: exports for January rose by 6.3% m/m, stronger than expectations of 1.5% m/m and the largest increase in 3-1.5 years. In addition, January imports rose by 3.6% m/m, stronger than expectations of 1.8% m/m and the largest increase in 11 months.

In his pre-election budget statement, Treasury Secretary Jeremy Hunt announced plans for permanent tax cuts in line with slowing inflation to stimulate economic growth and support public services. The Office for Budget Responsibility (OBR) predicts that inflation will fall below the Bank of England’s target in the coming months and will also revise growth forecasts upwards.

The ECB’s monetary policy meeting will take place today. The ECB is forecast to leave the interest rate at 4.5%. In recent weeks, almost all ECB officials have unanimously argued that a premature rate cut could set a dangerous precedent for anchoring inflation. As a result, money markets have pushed back the likelihood of a first-rate cut from April to June. ECB chief Lagarde will likely reiterate that data remains lacking and refrain from giving clearer guidance on policy easing. Such a stance would be a moderately negative scenario for the euro.

WTI crude futures fell slightly to $79.1 a barrel on Wednesday, retreating from a four-month high after EIA data showed a smaller-than-expected rise in weekly US crude inventories. The US crude inventories rose by 1.367 million barrels last week, less than market expectations for a 2.116 million increase. On Tuesday, the API reported a modest 423,000 barrel rise in nationwide inventories.

Asian markets traded flat yesterday. Japan’s Nikkei 225 (JP225) was down 0.02%, China’s FTSE China A50 (CHA50) lost 0.76%, Hong Kong’s Hang Seng (HK50) was up 1.70% on the day, and Australia’s ASX 200 (AU200) was positive 0.12% on Wednesday.

S&P 500 (US500) 5,104.76 +26.11 (+0.51%)

Dow Jones (US30) 38,661.05 +75.86 (+0.20%)

DAX (DE40) 17,716.71 +18.31 (+0.10%)

FTSE 100 (UK100) 7,679.31 +33.15 (+0.43%)

USD Index 103.37 −0.42 (−0.41%)

Important events today:

– Australia Trade Balance (m/m) at 02:30 (GMT+2);
– China Trade Balance (m/m) at 05:00 (GMT+2);
– Switzerland Unemployment Rate (m/m) at 08:45 (GMT+2);
– Eurozone ECB Interest Rate Decision at 15:15 (GMT+2);
– Eurozone ECB Monetary Policy Statement at 15:15 (GMT+2);
– US Initial Jobless Claims (w/w) at 15:30 (GMT+2);
– US Trade Balance (m/m) at 15:30 (GMT+2);
– Canada Trade Balance (m/m) at 15:30 (GMT+2);
– Eurozone ECB Press Conference at 15:45 (GMT+2);
– US Fed Chair Jerome Powell Testifies at 17:00 (GMT+2);
– Eurozone ECB President Lagarde Speaks at 17:00 (GMT+2);
– US Natural Gas Storage (w/w) at 17:30 (GMT+2);
– US FOMC Member Mester Speaks (m/m) at 18:30 (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.

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The Bank of Canada kept rates unchanged and maintained its dovish bias. The ECB will also keep all policy settings unchanged today