– US: In yesterday’s speech, Fed Chairman Jerome Powell highlighted the strength of the US economy, falling inflation, a robust labour market and stronger economic growth. Not exactly data that would suggest an urgent need to cut rates. Additionally, he refused to declare victory in the battle against inflation of the last 2 years or the expected soft landing. Nor did he promise that rate cuts would take place at the next meeting in March, something that the market had been discounting for only a month as the most likely scenario. “Inflation is still too high. Ongoing progress in bringing it down is not assured”, Until there is “greater confidence that inflation is moving” towards the central bank’s 2% target, rate decreases would not be prudent, Powell said.
The result was a disappointment for an overly optimistic market, which has pinned all its hopes on one single card, the March rate cut, as we warned in this report over and over again during the last weeks.
Markets responded almost immediately. The SP500 and Nasdaq 100 began sharp declines, -1,61% y -2,23% respectively, while US bond yields fell by more than 12 basis points on the 2-year bond, indicating a clear shift of money from equities to bonds.
On the other hand, the logical consequences of the above leave us with a dollar that is strengthening again and threatening to move higher with possible targets towards 104.50 DXY index points. Consequently, the EURUSD continued to fall, losing 1.08 and dropping towards 1.0780, but in the last few hours it has regained 1.08 again.
Regarding macroeconomic data, yesterday we had the ADP NFP surveys. The preliminary result shows 107k jobs versus 145k expected and 158k in the previous period, which would be a weak entry for the labour market, but should be confirmed with the NFP release tomorrow.
– Europe: The PMIs published today show contraction in Europe, except for Norway and Greece. Some, however, and within the contractionary territory, show better than expected data, as is the case of Italy. What is worrying is that the two main economic powers, France and Germany, remain at ratios below 50.
The Euro zone inflation rate has also been released, showing a slight rebound to 3.3% in January, versus 3.2% expected, the annualised rate to 2.8% versus 2.7% expected.
Despite all this, the mystery continues and the European market continues to witness a miracle, recovering the falls that Wall Street itself left last night. How is it possible that this area with such disastrous macro data continues to attract purchases and investment flows?
– China: Chinese stocks kept on falling. The CSI 300 plummeted 0.91%, and the Hang Seng plunged another 1.39%. Even though January is still early, they have already decreased by more than 9% and 6%, respectively, year to date. Stimulus announcements, both fiscal and monetary, do not seem to encourage the market.
– Geopolitics: On Wednesday, judges at the highest court of the United Nations declined to rule on Kyiv’s accusations that Moscow was behind the downing of Malaysia Airlines flight MH17 in 2014 over eastern Ukraine. As a reminder, this attack took place when the EU was discussing further sanctions against Russia. After the attack, the EU decided to follow the suggestions of the Obama administration (USA) and apply new sanctions. Another USS Main case? Cui Prodest?.
Russian President Vladimir Putin will visit Turkey on 12 February to meet counterpart Recep Tayyip Erdoğan. Since Moscow’s full-scale invasion, Turkey, which borders both Russia and Ukraine maritimely in the Black Sea, has worked to keep positive relations with both countries. It has expressed support for Kyiv’s territorial integrity and given it military assistance, but it also opposes sanctions against Russia.
Turkey and the UN mediated the Black Sea Grain Initiative, which offered protected shipments from Ukrainian ports, and Ankara has attempted to persuade Russia to rejoin.
Turkey and Russia have tight economic links that unnerve Western nations, especially in the areas of tourism, gas supplies, and grain and other agricultural commerce. They have, however, also clashed over wars in Syria and Libya, where they support different factions.