Macro-News round-up:

US: Yellen’s words brought optimism to US stock markets yesterday. “This morning’s CPI report showed that, in January, the headline consumer price index fell to 3.1 percent. That’s six percentage points below its peak in June of 2022,” she said. “At the same time, the recession that many forecasters predicted we would need, to see inflation come down, hasn’t materialized.”

Bond rates on the 2Y side dropped 8.6bps to 4.571%, while those on the 10Y side dropped back to 4.25%. US stocks rose too, the NASDAQ increased 1.3% and the S&P 500 gained 0.96%. The EURUSD slightly increased to 1.0730.

UK: According to official data, the gross domestic product (GDP) shrank by 0.1% between July and September before contracting by 0.3% in the three months leading up to December.

According to a Reuters poll, all experts had predicted a 0.1% fall in the fourth quarter, but the actual contraction was more severe.

Only Germany among the G7 countries is performing worse than Britain, with its economy only 1% greater than it was in late 2019, prior to the COVID-19 epidemic.

The BoE’s rate cut as early as June is once again being discussed by investors after data released on Wednesday revealed that inflation held at a lower-than-expected 4.0% in January. However, the BoE’s caution was reinforced by the robust wage growth that was published on Tuesday. Investors were pricing a roughly 68% chance on a first BoE rate cut at its June meeting.

Nevertheless, industrial production, labour activity and the trade balance are improving and Finance minister Hunt sees signs of brighter times ahead.

Japan: Following a revised 0.8% decline in Q3, flash data revealed that Japan’s economy unexpectedly shrank by 0.1% Q/Q in the Q4 of last year, below estimates for a 0.2% growth. Annually, the GDP dropped by 0.4%, marking the second straight quarter of loss, below market projections of 1.4% growth, and following a 3.3% decline in the previous quarter.

The GDP Price index fortunately fell more than expected, so it seems that the economy is depressed and the fall in inflation is one of its consequences. GDP Price index was 3.8% vs an expected 4%.

With sticky inflation and an unclear outlook for the global economy, it was the first recession in five years.

Geopolitics: using the passage of a new law on Monday, the European Union took a step towards financing Ukraine’s rebuilding using the proceeds from assets held by the Russian central bank that were placed under freeze. Following Russia’s invasion of Ukraine, the EU and the G7 both froze almost €300 billion in assets held by the Russian central bank, but they haven’t been sure how or when to use this money. The legislation passed on Monday means central securities depositaries (CSDs), such as Euroclear, will be prohibited from using net profits and must keep revenues from the Russian assets separate and stored until EU member states unanimously decide to set up a mechanism for them to be used.

In addition to the money made from the frozen assets, the US has also suggested taking the assets completely, but EU authorities believe this to be too risky from a legal standpoint at this time. The suggestion was backed by the UK, Japan and Canada.

Russia warned the West on Tuesday that it would react should the US and EU seize hundreds of billions worth of Russian assets.: “This is theft: It’s the appropriation of something that doesn’t belong to you,” Russian Foreign Ministry Spokeswoman Maria Zakharova.