Rise and shine everyone

The big day is here… it’s US CPI day. Everyone’s going to be watching this data that are to be released at 8:30 am ET to determine whether the Fed will change the timing of their rate cuts from May to March. We don’t think that is likely to be the case. Nevertheless, it’s a big reading as headline CPI is expected to come below 3% for the time since March 2021. More on inflation below.

US Equities continued to trade higher yesterday, with the Nasdaq hitting 18,000. But, markets sold off into the close. It was a big day for Bitcoin as well, crossing 50,000 for the first time since 2021.

US Equity Futures are pulling back this morning, with Oil and Gold trading higher. The US Dollar and Yields are pulling back.

Big Stories

US CPI expected at 2.9% YoY

This is the first inflation report for the year, so it’s for January 2024.

Consensus estimates headline inflation at 2.9% YoY vs. 3.4% in December. Core inflation is expected at 3.7% vs. 3.9% in December.

Under the surface, inflation for used cars is expected to slow, as is shelter inflation but, not by much because Lodging is expected to pick up by about 0.8%. As a reminder, here is last month’s scorecard:

Now bear in mind that Fed Chair Powell said that they are looking for more “good data”. He didn’t say better data. So we could very well see the market position for that. All we would need is some continuation of disinflation and the market could continue rallying given the current momentum.

Finally, we want to keep an eye on goods vs services. If we see a hotter goods number, that could signify that supply chain pressures are increasing because of geopolitical tensions.

UK Wages - down but not enough

Wage growth has been the thorn in the BoE’s side. UK Wage Growth has remained high and sticky driving up inflation for a while now. Today’s data came in at 6.2% YoY for Average Wages but missed the expectation of 6%. Wage Growth without bonuses came in even lower at 5.8% YoY down from 6.7% in December.

The data is on the trajectory that the Bank of England wants to see, but it’s still not falling fast enough. And when we compare this data to the Euro Area and the US, we can see that the UK remains relatively too high and this could push back the expectations of rate cuts.

The GBP and Gilt Yields rose, putting pressure on equities.

Chart of the Day

Global growth expectations seem to be a good indicator for equities, according to BofA’s Fund Manager Survey.

Other Stories

• Japanese stock market experienced a significant surge, increasing by 2.8%, with the Nikkei approaching the 38,000 mark for the first time since February 1990. Tokyo Electron saw an 11% increase, reaching its highest value since 2020 after upgrading its FY24 forecast. Softbank also rose by 9% as ARM, a chip designer, continued its upward trajectory following last week's earnings, with a 29% increase today and 98% over the past five days.

• Australian stock indices remained unchanged, affected by the Financial sector, particularly due to disappointing earnings guidance from Macquarie Group.

• Australian Consumer Confidence came in positive and highest since June 2022, and Business Confidence showed its first positive indication since last August.

• In New Zealand, expectations for Q1 inflation decreased across 1-year, 2-year, and 5-year outlooks. Following the release, the New Zealand dollar fell by 0.5%, and yields on 10-year sovereign bonds dropped by 1.5 basis points, despite an overall increase of 28 basis points since early February.

• South Korea's Kospi index rose by more than 1.2%, nearing its January peak of 2,730. Surpassing this level would mark the index's return to early 2022 figures for the first time.

• TSLA raises price in Germany for Model Y RWD to €44,990 (prior €42,990), Model Y Long Range to €52.490 (prior €49,990) and Model Y Performance to €58,490 (prior €55,990) - US financial press.

• The ZEW Sentiment Index reading came in higher for both the EA and Germany - a positive sign.

Calendars

(news taken from Reuters, FT, Bloomberg; Calendar from Trading Economics)