Global Markets Focus on Inflation Data to be Released in the US

Global markets are closely monitoring the upcoming inflation data announcement in the United States as uncertainties regarding interest rate cuts by the Federal Reserve persist, coupled with fluctuations in technology stocks throughout this week.

Despite the impact of Federal Reserve Chairman Jerome Powell’s “dovish” remarks becoming evident, the uncertainty about when the Fed will begin interest rate cuts continues, given mixed signals from macroeconomic data. The focus has shifted to the inflation data scheduled for release next Tuesday.

In his presentation on the semi-annual Monetary Policy Report to the House Financial Services Committee, Powell suggested that if the economy continues to perform as expected, it would likely be appropriate to start reducing policy constraints “at some point” this year. However, he emphasized the economic outlook is uncertain, stating, “But the economic outlook is uncertain, and progress toward our 2 percent inflation goal is not guaranteed.”

Powell also hinted at potential changes to the proposed recommendations for the capital requirements of the country’s major banks.

While indicating signs of a possible interest rate cut later this year during a presentation to the Senate Banking, Housing, and Urban Affairs Committee, Powell emphasized policymakers’ awareness of the risks associated with delaying interest rate cuts too long.

Other Fed officials’ guidance is also being closely monitored. Fed Board Member Michelle Bowman stated that if the data shows sustainable progress toward the 2 percent inflation target, it would be appropriate to gradually reduce the policy rate to prevent overly restrictive policies. However, Bowman expressed her view that the current situation does not warrant such actions, warning that premature policy rate cuts might necessitate future increases to return inflation to 2 percent in the long term.

Cleveland Fed President Loretta Mester expressed concerns about rapidly reducing interest rates rather than keeping them high for too long, emphasizing the need to avoid a situation where early easing could lead to a reversal of progress in inflation expectations.

In the midst of these developments, the “Beige Book” report, which provides assessments of the current state of the American economy, indicated a slight increase in economic activity since the beginning of January. The report suggested that the overall outlook for future economic growth remains positive.

San Francisco Fed President Mary Daly reaffirmed the Fed’s commitment to price stability, acknowledging that high interest rates temporarily increased housing costs but emphasized the need for such measures to reduce inflation.

Atlanta Fed President Raphael Bostic suggested that more confidence in the decline of inflation needs to be gained before considering an interest rate cut, expecting two quarter-point interest rate cuts later this year.

In the aftermath of these developments, market expectations indicate a 25 percent probability of the Fed’s first interest rate cut in May and a 73 percent probability in June.

Additionally, the price of the cryptocurrency Bitcoin set a new record, testing above $69,000, driven by continued interest in Bitcoin exchange-traded funds. Bitcoin’s price surge is noteworthy amidst various global market events.

Meanwhile, the European Union (EU) imposed a €1.8 billion fine on the US company Apple for abusing its dominant position in the distribution of music applications.

In equity markets, the decline in technology stocks is notable, and after the report of a 24 percent decline in smartphone sales in the first 6 weeks of the year in China, Apple’s shares lost 5 percent this week.

Reports emerged that production at Tesla’s Berlin factory came to a halt due to a power outage following a fire near the facility. Tesla’s stock saw a 13.5 percent weekly decline.

Alshaya Group, the Kuwait-based owner of Starbucks’ operating rights in the Middle East, announced layoffs at the coffee chain’s stores in the region, citing boycotts due to attacks on Gaza as the reason. Starbucks’ stock dropped by 2.3 percent last week.

In the US, the presidential primaries held in 15 states were dominated by Joe Biden in the Democratic Party and Donald Trump in the Republican Party, as expected.

Gold’s ounce price reached a record level of $2,195, ending the week with a 4.6 percent increase.

The report indicating a continued increase in US oil inventories, suggesting a surplus in supply, led to a 2 percent decrease in Brent crude oil prices, closing the week at $81.6.

With these developments, the US 10-year Treasury yield closed the week at 4.0790 percent, reflecting an 11 basis point decrease.

Negative trend in the New York Stock Exchange The New York Stock Exchange experienced a negative trend this week, influenced by mixed signals from macroeconomic data in the US.

Non-farm payrolls increased by 275,000 in February, causing the unemployment rate to rise from 3.7 percent to 3.9 percent, reaching its highest level in two years.

The average hourly earnings, closely monitored by the Fed, recorded the lowest increase since February 2022, with a 0.1 percent rise.

The Institute for Supply Management’s non-manufacturing Purchasing Managers’ Index (PMI) decreased by 0.8 points to 52.6 in February, below market expectations. However, according to the final data released by S&P Global, the services PMI exceeded expectations with 52.3.

The composite PMI, covering both manufacturing and services sectors, increased by 0.5 points to 52.5 in February, surpassing predictions. Factory orders in January decreased by 3.6 percent on a monthly basis, falling below expectations.

The 30-year mortgage rates fell to 7.02 percent last week, with mortgage applications increasing by 9.7 percent.

On the other hand, the ADP private sector employment increased by 140,000 in February, below market expectations. However, the Job Openings and Labor Turnover Survey (JOLTS) showed a higher-than-expected drop in the number of open jobs to 8.863 million in January.

Concerns also arose over the continued slow growth in annual wage increases, which reached 5.1 percent in the same period.

The number of first-time unemployment benefit claims in the week ending March 2 was in line with expectations at 217,000. Meanwhile, continuing claims increased by 8,000 to 1.906 million in the week ending February 24, reaching the highest level since November.

The US trade deficit increased to $67.4 billion in January, the highest level in nine months, with a 5.1 percent monthly increase.

Non-farm labor productivity in the US increased by 3.2 percent in the fourth quarter of last year, while the unit labor cost, one of the inflation indicators followed by the Fed, increased by 0.4 percent in the same period compared to the previous quarter.

The profit of the banking sector in the country decreased by approximately 44 percent to $38.4 billion in the fourth quarter of 2023 compared to the previous quarter. Household net worth in the US increased by 3.2 percent to $156.2 trillion.

In light of these developments, the Nasdaq index in the New York Stock Exchange recorded a 1.17 percent decrease, the S&P 500 index a 0.23 percent decrease, and the Dow Jones index a 0.93 percent decrease, closing the week.

Next week, inflation data will be announced on Tuesday, Producer Price Index (PPI), retail sales, weekly jobless claims on Thursday, New York Fed Manufacturing Index, industrial production, and the University of Michigan consumer confidence index on Friday are among the important data sets expected to be released. These releases are anticipated to provide further insights into the state of the US economy and potentially influence market sentiments and future policy decisions.

This report is for informational purposes only and should not be considered as investment advice. Any predictions or opinions mentioned in this report are subject to change without notice. Please conduct your own research before making any investment decisions.

source: prepared by Melisa Beğiç

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