Macro-News round-up:

MarketNews

Macro-News round-up:
#MarketNews

– US: Once again, the growth rate of the US economy surprises the world.  Having given a growth rate for Q3 of an astonishing 4.9%, the Q4 result was expected to be much lower, with a growth rate of 2%, and in line with the Fed’s official discourse, which assures that the economy is slowing down, its famous soft landing.  However, yesterday’s Q4 growth result showed an astonishing 3.3%.

Ten-year Treasury yields dropped 5.8bp to 4.118%, while two-year yields dropped 8.7bps. We also cannot attribute the decline in rates to weakness in the equities market, given yesterday saw some little increases on the S&P 500 and NASDAQ, which have been overbought since late November. If anything, the fall in bond yields would reflect an increase in confidence in the US economy, reducing its risk.

The DXY dollar rose a bit after the Q4 GDP release. But it remains at levels within the range 103 to 103.80 since about a fortnight ago. Nevertheless, EURUSD retreated again and is trading around 1.0850.

Today we will have important data for the US markets. The Fed’s favorite inflation rate, the PCE indicator, which I will comment on later on TV, after the release of the data.

– Europe: Yesterday’s ECB meeting effectively killed any talk of rate decreases in the near future, maintaining the same level of communication as earlier sessions. Lagarde emphasized that the Governing Council had determined that it was premature to contemplate rate decreases at this time. Market discount that could still be reduced at the June gathering.

When asked if she would reiterate her prediction that rate reduction by the summer were likely, which she said last week in Davos, Christine Lagarde stated that she always stands by her statements. We do recall that in November of last year, Christine Lagarde stated that the European Central Bank will not lower interest rates in the upcoming couple of quarters, even if we have since learned that it is not advisable to focus on any one word. Combining these two remarks would suggest that a first rate cut is only possible in July, not June.

Yesterday I published a compilation of Lagarde’s highlights from her speech to the press, you can find it here: https://www.linkedin.com/feed/update/urn:li:activity:7156293770861273088/

– Asia: Talks of assistance and the RRR cuts continued to boost Chinese equities. Both the CSI 300 and the Hang Seng increased by almost 2% yesterday. In Japan, Tokyo CPI inflation in January decreased more quickly than anticipated to 1.6% YoY (from 2.4% in December, as predicted by the market), while core inflation significantly decreased to 1.6% (from 2.1% in December, as predicted by the market). It appears unlikely that policy will change in March at this time.

With these data, and observing the direction Japan is taking, the USDJPY is returning to the areas it left last November, around USDJPY 148, making the yen extremely weak against the dollar. If for some reason the conflict in the Middle East escalates and ends up affecting crude oil, Japan will be in an extremely difficult situation, as energy costs will skyrocket for them.

– Geopolitical: The conflict in Ukraine is not getting any better. Yesterday details emerged of an air incident that took place on Wednesday.  Russia accuses Ukraine of deliberately shooting down a Russian military transport plane carrying 65 Ukrainian soldiers captured for a prisoner exchange.  


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