Macro-News round-up:

The US Treasury market had severe dyspepsia when the US CPI inflation for January was more than anticipated. In addition to being higher than anticipated, the headline CPI increase (0.3% MoM) and core CPI increase (0.4%) were also much higher than what is required for inflation to continuously decline in the direction of the Fed’s target rate. Now, all that remains to be seen is the PCE inflation data for January, to see if they confirm the trend published by the CPI.

Now, by the end of 2024, there are only 3 and a half, perhaps 2, 25bp reductions factored in. The market is only pricing in 37.4% of a 25bp relaxation in May and only completely pricing in a full cut by June/July. Two-year rates increased 18.4bps. The dollar index once again led the day’s trading with a strong rise to the 105 level.

The CPI report did not sit well with US equities. The NASDAQ dropped 1.8% and the S&P 500 dropped 1.37%, Losing the symbolic 5,000 points achieved. Equity futures indicate that the decline is still ongoing.

The EURUSD lost the 1.0750 support area and continued to fall, currently at 1.07. In line with our forecasts, which see a clear trend of the dollar strengthening against the euro to 1.05.

As it was mentioned yesterday, strong UK wage data helped cable GBPUSD rise, but unfortunately, An inflation rate that came in below expected rates deflated the Bank of England’s conservative expectations, pushing the pound lower, retreating back towards the levels of early last week, 1.2550.

Europe: Euro zone GDP grew by 0.1% y-o-y in Q4, giving an annualized growth of 0%.  On a positive note, at least industrial production rose to 2.6%.

The European market is trying to recover the levels lost during yesterday’s session. DAX40 is trading at 16,900 points, trying to climb back towards 17,000.

In a few hours, we will have more data, US Crude Oil and Japan’s GDP growth and inflation rate.