🌍 Market Report.
📈 The Bureau of Labor Statistics announced on Wednesday that the U.S. consumer price index increased by 0.5% in January compared to the previous month and by 3% over the year. These figures surpassed the Dow Jones forecasts of 0.3% and 2.9%, respectively. Additionally, the core CPI, which omits food and energy costs, also exceeded expectations. This strong inflation data has dampened prospects for further interest rate reductions by the U.S. Federal Reserve in the coming year.
📉 U.S. President Donald Trump expressed his belief yesterday that interest rates ought to be reduced. In a post on Truth Social, he stated, “Interest Rates should be lowered, something which would go hand in hand with upcoming Tariffs!!! Lets Rock and Roll, America!!!”
💹 The effect on markets was as we highlighted in yesterday’s report. Immediately after the release of the inflation data, equities suffered a contraction as the dollar strengthened. However, Trump’s comments on the need to lower interest rates managed to neutralise this effect, restoring prices. White House Press Secretary Leavitt: Trump wants interest rates lower.
🌏 U.S. and European stock futures rallied on optimism over prospects of a peace deal between Ukraine and Russia, offsetting a jump in Treasury yields due to hot inflation data. Global trade war fears persisted as President Trump said he would impose reciprocal tariffs on countries that charge duties on U.S. imports. The Japanese yen was the biggest loser against the U.S. dollar amid higher Treasury yields, while the euro gained on hopes of a potential Ukraine-Russia peace deal.
🇬🇧 Bank of England Chief Economist Huw Pill has warned that the central bank needs to move cautiously with cutting interest rates, as the process of bringing down inflation is not yet complete. Pill said the “big picture” is one of inflation falling towards the BoE’s 2% target, but underlying price pressures remain, meaning the BoE cannot just “remove all restriction overnight” or “cut rates aggressively.” Pill believes the main problem facing the UK economy is one of supply-side issues, such as labor shortages and weak business investment, rather than a demand-driven slowdown that would warrant sharper rate cuts. While wage growth expectations have moderated, Pill said the current 3.7% figure is still at the top end of what he sees as compatible with the BoE’s 2% inflation target. BoE’s Pill: I see significant impacts from US tariffs in the long term.
🇪🇺 Bundesbank President Joachim Nagel said the European Central Bank (ECB) should ease policy gradually and not focus on targeting a “neutral” interest rate, which he considers difficult to define. He said the Bundesbank’s estimate for the neutral rate is between 1.8% and 2.5%, a wide range. Nagel warned that the ECB “shouldn’t be too optimistic” about its next rate decision, as the situation could deteriorate further if a trade war escalates. Nagel advocated for the ECB to issue a digital euro as soon as possible to help the eurozone maintain monetary sovereignty and keep up with changing economic conditions. He also highlighted the broader challenges facing Germany and Europe that require structural reforms.
📊 Market View:
📈 US futures have recovered after the inflation scare. Mini SP500 futures hit a low of 6020 points yesterday, but are currently trading at 6080 points. Similarly, the Nasdaq 100 fell to 21,510 points and has recovered to 21,885 points at the moment. The keys to this move have been explained in the news section.
💵 The dollar index initially strengthened, rising above 108.50 points, but then fell and is currently at 107.55, which represents a significant change for the dollar. The euro/dollar pair approached 1.03, but has recovered and is trading at 1.0430. In addition, the yield on the 10-year US bond rose above 4.60%, reaching a high of 4.65% yesterday.
📊 A brief explanation for the situation is that higher inflation rates suggest that there will be no rate cuts in 2025. However, hours after the data release, Donald Trump reiterated his desire for rate cuts, which caused a 180 degree turnaround in the market.
🇩🇪 The DAX 40 has hit a new all-time high, approaching 22,500 points, despite 10 days to go until the German elections, where one of the favoured parties has campaigned to leave the eurozone. This euphoria is attributed to the announcement of the start of peace talks for Ukraine.
🥇 Gold has also strengthened, recently reaching $2950 per ounce in futures contracts. On the other hand, Brent crude oil, which rose rapidly to $77 on Tuesday, fell back to lower levels, currently trading at $74.50.
🪙 Finally, bitcoin continues to weaken; yesterday it fell to $94,000 and, although it temporarily recovered to $98,000, it currently stands at around $96,000.
🌍 Geopolitics:
🤝 Donald Trump has announced discussions to resolve the conflict in Ukraine, following his initial dialogue with Russian President Vladimir Putin. This has raised concerns among European leaders, as it sidelines them from negotiations and places the majority of responsibility on the EU. US Defense Secretary Pete Hegseth stated that Kyiv’s aspirations for NATO membership and border restoration are unrealistic and dismissed the idea of deploying American troops for a ceasefire. Bloomberg Economics estimates that Europe would need to allocate $3.1 trillion over the next ten years to achieve peace in Ukraine. However, bolstering Ukraine’s defense and enhancing the EU’s military capabilities could stretch the bloc’s finances and reveal long-ignored divisions.
🇺🇸 Trump emphasized that conversations were focused on an imminent meeting in Munich, where prominent American representatives, Vice President JD Vance and Secretary of State Marco Rubio, would advocate for U.S. interests. In a recent statement, Trump expressed optimism for favorable results from these discussions, highlighting the pressing need to end the “absurd War.” He concluded his message with a prayer for the welfare of the citizens of both Russia and Ukraine, reflecting a humanitarian perspective within the political dialogue.
🌐 Putin suggested the U.S. and Russia should discuss “bigger issues” beyond just the war in Ukraine, hinting at a potential redrawing of the global security and economic architecture. The Trump administration may be open to a new “three-block” global order, with the U.S., China, and Russia as the main power centers, along with regional powers like India, Iran, and Turkey. This could involve significant border changes, including the potential for Canada to become the 51st U.S. state, connecting Alaska to the continental U.S. and sharing the Arctic region with Russia. Such a radical reshaping of the global order would likely face resistance from the current Western establishment, including the UK and Europe, who have become heavily dependent on the U.S. Transitioning to a new multipolar world order could have major market and geopolitical implications.
🕵️♀️ Republican Anna Paulina Luna, who leads a newly established congressional task force focused on uncovering “federal secrets,” stated her belief that “two shooters” participated in the assassination of President John F. Kennedy.
🇩🇪 The far-right Alternative for Germany (AfD) party is dominating polls in East Germany just weeks before the federal election on February 23rd. The AfD has successfully capitalized on these feelings of economic insecurity. Opposition to immigration, skepticism towards climate change policies, and positioning as the party for those left behind are factors contributing to the AfD’s rise in East Germany. The AfD party is expected to dominate in East Germany.
