Last week, the international market was volatile. The size of the US debt exceeded the US $34 trillion mark. The US stock market stabilized and rebounded, with the Dow Jones up 0.34%, the Nasdaq up 3.09%, and the S&P 500 index up 1.84% for the week. The three major European stock indexes saw mixed gains and losses, with the FTSE 100 index in the UK falling 0.84%, the DAX 30 index in Germany rising 0.67%, and the CAC 40 index in France rising 0.60%.
There are many highlights this week, with the release of monthly retail sales rates in the United States and market attention on whether the economy can maintain resilience. UK inflation and employment data will be released, which may affect the central bank's expectation of future interest rate cuts. Another wave of turmoil in the Red Sea channel may cause sustained significant fluctuations in crude oil prices. The US stock market financial reporting season has begun, with the financial, energy, and industrial sectors becoming the focus.
The 2024 World Economic Forum Annual Meeting will open on Monday (15th) in Davos, Switzerland, for a period of five days. At that time, more than 2800 leaders from 120 countries and regions will discuss the theme of "rebuilding trust" from the perspectives of economic growth, monetary policy, climate and natural action, energy security, technological governance, and human development.
US retail may experience strong growth
In order to avoid a federal government shutdown, the US Congress reached an agreement last week on a total expenditure agreement of $1.59 trillion, of which $886 billion is for defense spending and $704 billion is for non defense spending. At the time of the agreement, the US government debt is approaching the critical deadline of January 19th, when many federal agencies will run out of funds.
According to data from the US Treasury Department, the total budget deficit of the US government for the first quarter of fiscal year 2024 (October December 2023) reached $510 billion, a year-on-year increase of 21%. The sharp increase in deficit has led to the total government debt exceeding $34 trillion for the first time. Institutions predict that the deficit in 2024 will expand to slightly over $2 trillion compared to the final deficit of $1.7 trillion last year.
In terms of data, the monthly retail sales rate will be the biggest focus. As an important indicator of the economy, although consumer spending in the United States slowed down after a surge last summer, it remains resilient. The monthly retail growth rate in November increased by 0.3%, and it is expected to maintain a similar growth rate in December. The data performance may affect the outside world's judgment on the future prospects of interest rate cuts. The Federal Reserve will release a brown book on the economic situation, and several officials will also give routine speeches.
The data on new housing construction, construction permits, and completed housing sales in December will be released, and the market is paying attention to signs of stabilization in the real estate market at the end of the tightening cycle. At the same time, the New York and Philadelphia Federal Reserve Manufacturing Index will showcase the recovery of manufacturing in the eastern United States, and the views of respondents in the University of Michigan Consumer Survey on inflation expectations and economic prospects are also worth noting.
As the financial reporting season enters its second week, this week's focus includes financial institutions such as Goldman Sachs, Morgan Stanley, and Credit Suisse, as well as representative companies in the industrial, manufacturing, and energy industries such as Alcoa and Schlumberger, whose performance has attracted attention from the outside world.
Crude oil and gold
Crude oil futures bottomed out and rebounded last week, as a new round of panic over potential supply disruptions was triggered by air strikes by British and American forces on the Yemeni Houthi armed forces. The WTI crude oil near month contract fell 1.53% to $72.68 per barrel, while the Brent crude oil near month contract fell 0.60% for the week to $78.29 per barrel.
The Red Sea connects the Middle East, Asia, and Europe through the Suez Canal and the narrow Strait of Mandela, with an estimated $1 trillion in goods passing through this area every year. The Housai armed forces began to frequently attack passing merchant ships after the outbreak of war between Palestine and Israel last year. Data shows that last week the organization launched the largest scale missiles and drones to date towards ships passing through the Red Sea.
ActivTrades Senior Analyst Ricardo Evangelista stated: "As one of the most critical oil supply channels to the West is threatened, it is not surprising that if tensions in the Middle East continue to escalate, crude oil prices may further rise. Ship attacks force shipping companies to detour to other waterways, such as South Africa's Cape of Good Hope, resulting in longer transportation times and higher costs, thereby impacting the global supply chain."
Gold prices surged at the end of the day as the escalation of the Middle East conflict stimulated safe haven buying, while the weakness of the US Producer Price Index (PPI) intensified investor bets that the Federal Reserve may lower interest rates earlier. COMEX gold futures for January delivery on the New York Mercantile Exchange rose 0.21% on the week to $2046.70 per ounce.
Bart Melek, head of commodity strategy at Dow Securities, said that the rise in geopolitical risks is driving up gold prices, while the Federal Reserve seems to be preparing to start slowing down its restrictive monetary policy, which is also an important catalyst for prices.
Focus on UK CPI
According to data from the European Bureau of Statistics, the regional CPI increased from 2.4% to 2.9% in December last year, which also supports the European Central Bank's claim that interest rates will temporarily remain at historical highs.
The European Central Bank had previously predicted that inflation rates would fluctuate between 2.5% and 3% for most of this year. Many policymakers have stated that any remarks about interest rate cuts would be premature before the release of key first quarter wage data in May. European Central Bank Chief Economist Lien emphasized last week that interest rate cuts are not a recent topic of debate. "Once we have enough confidence to firmly achieve the 2% inflation target, the topic of interest rate cuts will obviously become the focus. However, for now, this is only temporary speculation, and we need to see upcoming data before we can consider it."
The interest rate futures market has lowered its expectations for a rate cut from the European Central Bank. Market quotes show that traders are inclined to cut interest rates by 140 basis points before the end of the year, which is equivalent to a space of 5 times. At the same time, the first interest rate cut point is towards April this year.
According to statistics released by the UK Office for National Statistics, the country's gross domestic product (GDP) increased by 0.3% month on month in November last year, reversing the 0.3% decline in October. This week's wage and inflation data may be key indicators for the Bank of England to consider when to start lowering benchmark interest rates. It is expected that wage growth will drop to 6.7%, and overall CPI will drop to 3.8%. However, similar to the European Union, the market needs to be wary of the possibility of data rebound in January after the base effect ends.
Bank of America has released a report stating that it expects UK banks to start cutting interest rates in August 2024, with a 25 basis point cut every quarter thereafter. "The UK will be the last major central bank to start cutting cycles, and actions may slow down, at least compared to the European Central Bank."
Highlights of this week
