London, England – European stocks saw a slight increase after the S&P 500 closed at a new record high on Friday. This was bolstered by optimism around potential Federal Reserve interest-rate cuts and anticipation for a crucial update on US inflation. Real estate stocks that are sensitive to interest rates led gains in Europe, while oil companies lagged due to weakness in crude prices. US equity futures maintained narrow ranges following the historic S&P 500 close, which was fueled by a resurgence in big tech company stocks. Treasury yields slightly decreased, and the dollar held steady after concluding its longest winning streak since early September.
The highlight of the week for market observers is the inflation report set to be released on Tuesday. This report is critical as it will provide insight into the timing of potential Fed rate cuts. The growing anticipation was evident last Friday when Atlanta Fed Bank President Raphael Bostic emphasized his focus on returning inflation to target, and Dallas Fed counterpart Lorie Logan expressed a lack of urgency for easing. With more Fedspeak expected later in the week, traders are eagerly awaiting remarks from three central bank officials.
Market analysts are expecting the January CPI numbers to soften compared to December, but with cautious statements from Fed officials, the impact of this week’s CPI report may be limited. The annual US inflation rate is projected to have decreased to 2.9% in January, the first reading below 3% since March 2021. Swaps market pricing reflects a reduced expectation of a Fed rate cut in March from 65% a month ago to 15% currently. Traders now forecast four 25-basis-point rate cuts in 2024, down from seven projected at the end of last year.
Global Wealth Management Chief Investment Officer Mark Haefele believes that the outlook for global bonds is positive, even if the market’s predictions of Fed rate cuts do not materialize as anticipated. The market seems to be banking on continued disinflation, which could potentially prompt the central bank to begin easing this year. In Asia, trading levels remained subdued on Monday, with several markets closed for the Lunar New Year holidays. The yen held near a two-month low attained on Friday after comments from central bankers hinted at a gradual approach to raising rates by the Bank of Japan.
In commodities, oil prices declined following a recent increase, as Iran’s foreign minister suggested progress towards a potential diplomatic solution to the conflict in Gaza. This week, a series of key events is on the horizon, including various economic indicators and speeches from central bank officials around the world. The coming week’s market movements will be closely watched as investors await critical data and speeches from key financial figures.
Overall, the economic landscape is poised for potential shifts based on the outcomes of these events, and investors and traders are eagerly anticipating the implications of this week’s developments.