09 Mar

The Bank of Canada has officially taken a pause. China’s inflation numbers are down sharply

March 9, 2023

By JustMarkets

Analysts and investors struggled to find a reason to be optimistic about stocks yesterday. Still, stock indices remained under pressure Wednesday amid lingering fears of renewed aggressive rate hikes by the Federal Reserve. The latest labor market data showed that private-sector job gains in February exceeded economists’ estimates, increasing the likelihood that the Fed will be forced to accelerate the rate hikes at its March meeting. The probability of a return to raising rates by 50 basis points at the Fed meeting on March 21-22 rose to 80% compared to 71% the day before. As the stock market closed Wednesday, the Dow Jones Index (US30) decreased by 0.18%, while the S&P 500 Index (US500) added 0.14%. The NASDAQ Technology Index (US100) gained 0.40%.

The Bank of Canada left the interest rate unchanged at 4.5%. This was the first pause among major central banks. But the Bank of Canada reiterated its statement that it is willing to keep raising the interest rate if necessary to get back to its 2% target. But analysts believe this is just a formality, and officials have already hit the pause button for the rest of the year.

Stock markets in Europe were mostly up Wednesday. German DAX (DE30) gained 0.46%, French CAC 40 (FR40) shed by 0.20%, Spanish IBEX 35 (ES35) added 0.67%, and British FTSE 100 (UK100) closed yesterday on the plus side by 0.13%.

The increase in short-term rates in the US influenced the prospects of the European Central Bank. The swap market is showing more confidence (85%) in a 50 basis point rate hike in May, which would raise the deposit rate to 3.50%. Nomura raised its forecast for the ECB, predicting that the final rate will reach 4.25% — with changes of 50 basis points in March, May, and June, followed by a final quarter-point increase in July.

On Wednesday, crude oil prices fell for a second straight day, even as oil inventories fell. Inventories fell by 1.694 million barrels last week, the first weekly drop in inventories since December. The rise in the dollar index on the back of the US Federal Reserve’s aggressiveness outweighs the factors of falling inventories and rising demand from China.

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Asian markets traded flat yesterday. Japan’s Nikkei 225 (JP225) jumped by 0.48%, China’s FTSE China A50 (CHA50) fell by 0.80%, Hong Kong’s Hang Seng (HK50) ended the day down by 2.35%, India’s NIFTY 50 (IND50) gained 0.24%, and Australia’s S&P/ASX 200 (AU200) ended the day negative by 0.77%.

Japan’s economy is suffering from slowing demand overseas due to worsening global growth, leading to a record trade deficit and the largest output contraction in eight months in January. Japan reported a record trade deficit for January (~3.2 trillion yen, or ~$23.7 billion). Japan’s gross domestic product (GDP) increased by 0.1% year-over-year in the last quarter against a preliminary estimate of 0.6% growth and well below economists’ average forecast of 0.8% growth. In an effort to boost household purchasing power, the government and the Bank of Japan (BOJ) are urging firms to raise workers’ wages at the annual spring wage talks, which conclude this month.

China’s annualized consumer price index fell from 2.1% to 1%, well below the 1.9% forecast. The factory inflation fell to 1.4% on an annualized basis. The data show that despite a rebound in business activity, China’s economic recovery is still in its infancy as the country struggles to recover from three years of strict COVID-19 restrictions.

S&P 500 (F) (US500) 3,992.01 +5.64 (+0.14%)

Dow Jones (US30)32,798.40 −58.06 (−0.18%)

DAX (DE40) 15,631.87 +72.34 (+0.46%)

FTSE 100 (UK100) 7,929.92 +10.44 (+0.13%)

USD Index 105.69 +0.08 (+0.07%)

Important events for today:
  • – Japan GDP (q/q) at 01:50 (GMT+2);
  • – China Consumer Price Index (m/m) at 03:30 (GMT+2);
  • – China Producer Price Index (m/m) at 03:30 (GMT+2);
  • – US Initial Jobless Claims (w/w) at 15:30 (GMT+2);
  • – US Natural Gas Storage (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.


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