Macro-News round-up:


  • EE.UU: Yesterday, Waller of the #FED said: “Economic activity and the labor market are in good shape, inflation is gradually coming down to 2%, I see no reason to act as quickly or cut as fast as in the past”.

This was probably the most sincere words we have heard from the Fed in recent months. As we said in past newsletters, the over-optimism that interest rates would be cut, first in June, and now in March, had no rational justification. Waller has said out loud what we have been thinking for weeks.

The reaction has been a sharp rally in the dollar, a fall in the EURUSD, a rise in US 2-year bond yields, and Stocks retreat, SP500 Futures have lost almost 1% since yesterday, as Waller’s words would mean that the expected liquidity would not come as fast.

  • UK: As happened last week with the US data, we have a pick up in both headline and core inflation, with negative and worse than expected PPI data. PPIs falling to 1.2% would show deflation risks, however, the updated core inflation is up 5.1% versus the expected 4.9%, which is worrying for the BoE.

This would indicate that a decoupling is taking place, either on the demand side with strong consumption expectations or on the supply side with some subsidies. but the end result on prices would be difficult for central bankers to foresee.

  • Europe: Christine Lagarde, the president of the ECB, will speak twice today. Many ECB speakers have resisted the market’s pricing of 150 basis points of rate reduction this year, but the market has shown to be rather obstinate. When President Lagarde speaks today, let’s see if she can make a difference.

In this context, as we highlighted at the beginning of the week, Europe’s industrial production contracted by -0.3%. Germany, its main economy, has been showing recessionary data for some time now. In this context, coupled with a rebound in the dollar, the euro is likely to weaken, attracting more investment capital into the dollar.

On the other hand, rising geopolitical tensions in the Middle East have two downsides for the euro. Increased global tensions tend to attract capital into safe-haven assets such as the risk-free US bond.

On top of this, the increases that this could produce in energy prices, in a highly dependent Europe now more than ever, and with a more expensive dollar against the euro, would put a strain on the European economic recovery, further discouraging euro-denominated assets. In other words, I would not hold European equities. At the time of writing, the DAX40 is down about 1%.

  • China: Early this morning’s data release shows Gross Domestic Product growth of 5.2% annualized to Q4 2023, below expectations of 5.3%. Slight uptick in the unemployment rate to 5.1%, and some improvement in industrial production 6.8% vs 6.6% expected.

Remember, the main concern during 2023 has been slower than expected growth in China.