Wayne Cole offers a comprehensive outlook on the day ahead in both European and global markets, drawing attention to the relatively subdued activity in Asia on Monday. This subdued atmosphere is primarily attributed to the celebration of holidays in key financial centers such as China, Japan, and Singapore, where trading activities are typically halted.
Moreover, the observance of Lunar New Year as a public holiday in New York State adds to the quietness, although this doesn't extend to Wall Street, where market operations persist.
Consequently, the impact of these holidays is reflected in the marginal movement of U.S. stock futures, the slight uptick in European equity and Treasury futures, and the modest softening of the dollar.
Market sentiment appears to be tinged with caution, particularly in anticipation of the forthcoming release of the U.S. consumer price report for January, scheduled for Tuesday.
This report holds significant implications for market dynamics as it is expected to influence speculation regarding potential Federal Reserve rate adjustments in March or May.
Analysts are eyeing a projected 0.2% month-on-month increase in headline Consumer Price Index (CPI), with core CPI anticipated to rise by 0.3%. Of note, the annual CPI is forecasted to reach 3.0%, with core CPI expected to moderate to 3.8%, marking its lowest level since mid-2021.
Notably, the anticipated decline in prices for used cars is expected to exert downward pressure on the overall CPI, while market participants are also keenly awaiting signs of deceleration in rent growth.
Estimates for core CPI range from +0.1% to +0.3%, signaling a potential downside risk. However, recent revisions in seasonal adjustments are not expected to have a substantial impact on projections, with only marginal adjustments observed in the six-month annualized pace.
Market expectations regarding rate cuts have undergone a shift, with futures suggesting a reduced likelihood of a rate cut in March (17% chance), while the probability of a rate easing in May has increased to approximately 80%.
Overall, the market is pricing in 121 basis points of cuts for the year, a decrease from previous estimates.
Looking ahead, the week is marked by several significant events, including speeches from eight Federal Reserve officials, including Governor Christopher Waller.
Additionally, market participants are anticipating the release of U.S. retail sales data, with forecasts indicating a slight overall decline but a rise when excluding auto sales, while the control group is expected to demonstrate continued strength.
In the UK, attention is focused on the release of CPI data and Q4 GDP readings, which could potentially confirm a technical recession. This timing is particularly sensitive as it coincides with two by-elections, where polls suggest potential losses for the Conservative Party.
Market participants are eagerly awaiting a speech from the Governor of the Bank of England, with analysts expecting a reiteration of the bank's hawkish stance on rate cuts.
Notably, inflation persists in certain sectors, such as the chocolate industry, where cocoa prices have surged due to poor harvests exacerbated by weather patterns.
Earnings reports from companies such as Kraft Heinz, Coca-Cola, and Restaurant Brands are anticipated to provide insights into cost dynamics and margin pressures. Additionally, other notable companies reporting earnings include Airbnb, Marriott, MGM Resorts, Cisco, Lyft, DoorDash, and Deere.
Key developments for Monday include speeches from Bank of England Governor Bailey, ECB Chief Economist Lane, ECB board member Cipollone, and Federal Reserve Presidents Bowman, Barkin, and Kashkari.
These events and reports are expected to play a significant role in shaping market movements and investor sentiment throughout the day.
12.02.2024
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