A look at the day ahead in European and global markets by Anshuman Daga
Today’s inflation numbers from the world’s largest economy on Valentine’s Day will be one of the most important economic data to be watched by the markets.
While January’s blockbuster jobs data has forced some market participants to reluctantly accept that the peak in interest rates is not near, investors are still hoping that the Federal Reserve could start cutting rates later this year.
As Toronto-based independent proprietary trader Kevin Muir said, “I don’t know if it will be this release or the next, but I suspect the market has been a little too eager to accept inflation’s return to normal.”
“There seems little fear of an ongoing inflation problem. Sure, there are a few pundits warning about inflation, but the market is clearly screaming at the top of its lungs that inflation worries are misplaced.”
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The market expects rate hikes to ease, although Fed Chair Jerome Powell acknowledged last week that if this kind of economic strength threatens the Fed’s progress on cutting inflation, rates may have to rise higher than expected.
Economists polled by Reuters expect Tuesday’s CPI reading to show headline prices and core CPI rising 0.5% and 0.4%m/m respectively for January. However, some recalibrated their expectations for a slightly lower CPI on Monday.
Asian stocks edged higher on Tuesday, while the yen recouped losses as Japan appointed a new central bank governor.
Adding to the positive momentum, sources said US Secretary of State Antony Blinken is considering meeting top Chinese diplomat Wang Yi at the Munich Security Conference, which will begin this week.
This would be their first face-to-face conversation after the United States allegedly shot down a Chinese spy balloon and other flying objects.
Meanwhile, the UK asset deep freeze is thawing.
After last year’s upheaval, UK stocks and bonds are attracting strong investor interest, with the FTSE 100 stock index (.FTSE) flirting with record highs as the stock market benefits from global trends such as the reopening of the Chinese economy and strong energy prices.
Ten-year government bond yields have fallen 27 basis points to 3.4% so far in 2023, among one of the sharpest declines in government financing rates in the most advanced Group of Seven economies.
Reuters graphics
A Reuters poll released on Tuesday showed the Bank of England will make its last hike in borrowing costs of the current cycle next month in a bid to combat double-digit inflation as the economy almost certainly enters a recession.
In Italy, Prime Minister Giorgia Meloni and her coalition allies notched up sweeping electoral victories in the country’s two wealthiest regions, strengthening the grip of the right.
Meanwhile, Qatari investors are preparing to launch a bid to buy Premier League club Manchester United in the coming days, Bloomberg reported.
Key developments that could impact markets on Tuesday:
European economic data: Eurozone GDP for Q4, UK jobs in December, unemployment figures in January
US CPI data due: Jan CPI – Core CPI forecast at +0.4% from +0.3% in December, +5.5% yoy from +5.7%
Reporting by Anshuman Daga; Editing by Jacqueline Wong
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