Last week, the international market was volatile, with the Federal Reserve suppressing expectations of a rate cut in March, and the Bank of England holding its ground.
In terms of the market, the three major US stock indexes rose overall, with the Dow Jones Industrial Average up 1.43%, the Nasdaq up 1.12%, and the S&P 500 index up 1.38% for the week. The three major European stock indices have performed poorly, with the FTSE 100 index in the UK falling 0.26%, the DAX 30 index in Germany falling 0.25%, and the CAC 40 index in France falling 0.55%.
There are many highlights to watch this week, and Federal Reserve Chairman Powell will appear on television programs, with several Federal Reserve officials giving speeches. Major economies in Europe and America released their final service sector PMI for January, focusing on the momentum of economic recovery. As the financial reporting season enters the mid to late stages, Lilly, Disney, Uber, Pepsi, and Chinese concept stock Alibaba will release their performance reports.
In addition, the Federal Reserve of Australia will hold a meeting to discuss interest rates. Market pricing indicates that interest rates will remain unchanged, so the focus will be on confirming whether the Bank of Australia will abandon its stance on further tightening. Inflation in Australia slowed significantly in the fourth quarter of last year, leading to a cooling of the labor market and disappointing consumer spending during the holiday period. Considering the uncertainty of the outlook and the continued inflationary pressure in the service industry, the central bank may maintain a wait-and-see stance.
The US service industry is expected to maintain expansion
The Federal Reserve remained silent for the fourth consecutive time last week, maintaining the target range of the federal funds rate at 5.25% to 5.50%. Powell stated at a press conference that it is unlikely to cut interest rates in March this year, believing that the Federal Reserve still does not fully believe in winning the inflation war. He emphasized that stable economic growth, flexible consumer spending, and a tight labor market are factors that may keep inflation rates above 2% for a period of time.
On the morning of the 5th Asian time slot, Powell will appear on a television program. After the interest rate decision was announced, the Federal Reserve faced pressure from multiple sources, with Democratic senior members of the Senate Banking Committee urging the Fed to quickly cut interest rates, claiming that high interest rates had damaged the real estate market. In addition to the topic of interest rate cuts, Powell may respond to more questions about the election. US presidential candidate Trump once again shelled Powell last week, stating that if elected, he would not be considered for a third term.
Several Federal Reserve officials will also deliver routine speeches in the coming week. After the release of the January non-farm report, the Federal Reserve's views on the job market and inflation prospects will become a factor influencing when to initiate the easing cycle.
In terms of data, the January ISM non manufacturing index was the biggest focus, which is also one of the most important leading indicators of the US economy. Institutions predict that data is expected to remain above the expansion line, indicating that the US economic momentum remained stable at the beginning of the year, which may further suppress external expectations for future interest rate cuts. In addition, indicators such as trade accounts, monthly wholesale inventory rate, and January consumer credit report from last December are also worth investors' attention.
The financial reporting season continues, and companies worth paying attention to this week include McDonald's, Caterpillar, Lilly, Anjin, Walt Disney, Uber, and Pepsi. The performance of Chinese concept stock Alibaba will become a target of attention for Chinese investors.
Crude oil and gold
International oil prices hit a new low in nearly three weeks and the largest weekly decline since October last year, as geopolitical factors cooled expectations and suppressed risk aversion. WTI crude oil fell 7.35% to $72.28 per barrel for the week, while Brent crude oil fell 6.78% to $77.33 per barrel for the week.
Last week, there were reports that Israel and Hamas may soon reach an agreement on a ceasefire and hostages, but Qatar subsequently explicitly denied the news. The member state organization OPEC+held a meeting, and all parties agreed to maintain the current production policy unchanged. In March, they decided whether to further extend the production reduction plan implemented last year.
Rob Haworth, Senior Investment Strategy Director at Bank of America Asset Management, said, "Although inventory in the United States remains low, especially in the face of challenging winter weather, the market is still more focused on demand prospects."
International gold prices rose and fell, and the expectation of the Federal Reserve cutting interest rates hit buying. The COMEX gold futures contract for February delivery on the New York Mercantile Exchange closed at $2039.56 per ounce, up 1.0% for the week.
GoldSeek President Peter Spina said that the Federal Open Market Committee is taking a more patient approach to maintaining higher interest rates for a longer period of time, which weakens hopes of an early rate cut. However, the fundamental strength of the gold market is also driven by central bank purchases. The World Gold Council stated in a report released last week that central bank gold purchases maintained an "astonishing speed" last year, reaching 1037 tons.
New York independent metals analyst Tai Wong said that despite the poor employment report, gold prices have remained stable, "but we may need to wait for some time to see if gold will be further affected by the expected changes in the Federal Reserve's interest rate cut outlook."
Expectations of interest rate cuts in Europe cooling down
Due to unexpected economic growth in Italy and Spain, offsetting the downturn in Germany, the eurozone economy unexpectedly avoided its first recession since the pandemic in the second half of 2023. According to Eurostat data, the growth rate of gross domestic product (GDP) in the eurozone in the fourth quarter of last year was 0, better than the market's expected decrease of 0.1%.
At the same time, the slower than expected slowdown in inflation in the eurozone may test the prospect of the European Central Bank starting interest rate cuts as early as spring. The January CPI of the Eurozone increased by 2.8% year-on-year, with market expectations of 2.7%. The core CPI increased by 3.3% year-on-year, with market expectations of 3.2%. The forward pricing of the European Central Bank's Euro Short Term Rate (ESTR) is set to lower the policy rate to 145 basis points in 2024, with a 90% chance of a 25 basis point rate cut in April 2024.
When it comes to the future policy prospects of the European Central Bank, Jack Allen Reynolds, Deputy Chief Economist for the Eurozone at Capital Investment, said, "The biggest concern for policymakers is that the inflation rate in the service sector has stopped falling, and this data has remained unchanged at 4.0% since November."
The Bank of England announced that interest rates remain unchanged. The resolution statement softened its stance and abandoned the statement that further tightening would be necessary if there were more persistent inflationary pressures.
It is worth mentioning that the UK Monetary Policy Committee voted with 6 votes in favor of holding still, 2 votes in favor of raising interest rates by 25 basis points, and 1 vote in favor of lowering interest rates by 25 basis points. This is the first time since the early stages of the global financial crisis in August 2008 that there has been a simultaneous vote on interest rate hikes and cuts at the same meeting. Bank of England Governor Andrew Bailey said, "We need to see more evidence that inflation will remain at the target of 2% and remain unchanged before we can lower interest rates."
Market pricing suggests that the likelihood of a 25 basis point interest rate cut in May in the UK is about 70%, and the easing rate in 2024 is about 110 basis points. Matthew Landon, global market strategist at JPMorgan Private Bank, believes that although the situation is still very uncertain, the outlook for the UK economy is much better than a few months ago. Since the beginning of the year, the market has also adapted to the better growth prospects in the UK.
Market highlights