Another day, another record high!

Thoughts of the Day

Major US stock indices, S&P500 and Nasdaq, hit record highs again, while Bitcoin soared above $60,000, up nearly 43% for the month, marking its best monthly performance since Dec 2020. Note that the Fed hasn’t even begun talking about rate cuts. The PCE Price Index showed prices are rising at the lowest rate since early 2021. As long as inflation does not spike higher, risk assets will continue their upward trend.

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Day Ahead

The revised University of Michigan Consumer data will be released. 

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What Happened Yesterday

Market Movements as of New York Close 29 Feb 24

Goolsbee (2025 voter, known dove):
“Even with January PCE data showing a good rebound, we should be cautious about extrapolating.”
Bostic (current voter, known hawk): “Probably appropriate to reduce policy rate in summer.”
Mester (current voter, known hawk): “We cannot rely on the pace of disinflation last year to continue this year. Three rate cuts this year feels about right.”
Daly (current voter, known hawk): Fed’s Daly wants “to avoid holding rates all the way to 2% inflation. Cutting too quickly could risk inflation becoming stuck.”
(Goolsbee is starting to tilt towards a more neutral tone. Bostic’s comments are inline with his previous ones. Although Mester and Daly continue to expect rate cuts this year, they are starting to worry that the disinflation trend may halt.)

In January 2024, the US saw its annual PCE inflation rate decrease to +2.4% as expected, reaching its lowest point since February 2021, down from +2.6% the previous month. The core PCE price index, which is the Federal Reserve’s preferred inflation metric, rose +2.8% as expected year-over-year in January 2024, marking the smallest rise since March 2021. This represented a modest deceleration from December’s +2.9%. On a monthly basis, the personal consumption expenditure price index in the US went up by +0.3% in January 2024, consistent with expectations and following a revised increase of +0.1% in December (revised from +0.2%). Additionally, the monthly core PCE inflation, excluding food and energy, climbed to 0.4%, indicating the most significant monthly increase since February of the previous year, exceeding December’s revised rate of 0.1% (revised from +0.2%), and also aligning with market projections.

In the week ending on 24 Feb, the US saw a significant increase in unemployment benefit claims, rising by 13,000 to reach 215,000. This uptick marked a sharp reversal from the previous five-week low and exceeded analysts’ forecasts of 210,000. Moreover, the number of ongoing jobless claims climbed by 45,000 to 1,905,000 in the week prior, reaching its highest point since November and surpassing the anticipated 1,874,000. Although the labour market remains historically strong, these figures suggest a slight weakening, likely influenced by the Federal Reserve’s sustained tight monetary policy.

The US Treasury Yield curve inversion widened to 0.39% as the US 2-year bond yield remained at 4.64% while the 10-year yield fell -0.02% to 4.25%.

The US stock futures traded higher during the early Asian hours. However, it then started to falter in the latter half of the session into the London session and traded sideways until the release of the US PCE Price Index data which sent markets higher. The S&P 500 futures were up +0.51% when the New York session began.

The US stock market opened higher from Wednesday due to the US PCE data. It then experienced some weakness following hawkish comments from Fed officials. However, markets eventually bounced back and surged higher as risk sentiment improved. As a result, the S&P 500 rose +0.52% (high: +0.69%, low: -0.16%), the Dow Jones increased +0.12% (high: +0.32%, low: -0.36%) while the Nasdaq leapt +0.95% (high: +1.09%, low: -0.05%).

The crypto market fell on the day as the market took a breather from the recent bullish mania in cryptos
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Headlines & Market Impact

BOJ policymaker calls for overhaul of ultra-loose monetary policy

Notable Snippet: Bank of Japan board member Hajime Takata said the central bank must consider overhauling its ultra-loose monetary policy, including an exit from negative interest rates and bond yield control.

Measures that should be under consideration include an exit from yield curve control, negative interest rates and a tweak to the BOJ’s commitment to keep expanding its monetary base until inflation stably exceeds 2%, he said in a speech on Thursday.

“It’s necessary to consider taking a nimble and flexible response, including on how to exit, or shift gear from the current extremely accommodative monetary policy,” he added.

“While there are some economic uncertainties, I feel that we’re finally seeing prospects for achieving our 2% inflation target,” Takata said, pointing to growing signs of change in companies’ long-held practice of forgoing wage and price hikes.

Sources have told Reuters the BOJ was on track to end negative rates in coming months despite Japan’s economy slipping into a recession, on growing signs that companies will continue to offer bumper pay amid a tightening job market.

A Reuters poll showed more than 80% of economists expected the BOJ to pull short-term interest rates out of negative territory in April. A few are betting on a chance of action at the next policy meeting in March.

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Putin warns of nuclear war if NATO sends troops into Ukraine

Notable Snippet:  Russian President Vladimir Putin warned NATO countries of the danger of a nuclear conflict with Moscow, if NATO troops were deployed on the ground in Ukraine.

″[The West] must realise that we also have weapons that can hit targets on their territory. All this really threatens a conflict with the use of nuclear weapons and the destruction of civilization. Don’t they get that?” Putin said in his annual state-of-the-nation address Thursday, according to an EBU feed.

The comments appeared to be a direct response to French President Emmanuel Macron’s suggestion earlier this week that European heads of state and Western officials, who had met in Paris on Monday, had talked about the possibility of sending ground troops into Ukraine.

The French leader on Monday said that there was no consensus on the idea, but that it had not been “ruled out.”

The comments have since sent NATO countries scrambling to deny they’d send troops into Ukraine, with Russia warning that such a deployment would prompt an “inevitable” Russia-NATO conflict.

In his speech to Russian lawmakers on Thursday, which lasted more than an hour, Putin accused the West of trying to drag Moscow into an “arms race,” adding that Russia was ready for dialogue with the U.S. on “strategic stability,” but would not be forced into talks.

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China’s manufacturing activity falls for fifth consecutive month in February

Notable Snippet: China’s manufacturing activity continued to fall for the fifth month in a row, despite Beijing having mobilised considerable resources to incentivise construction, foreign investment and consumption.

The official manufacturing purchasing managers’ index (PMI) fell to 49.1 in February from 49.2 a month earlier, the National Bureau of Statistics said on Friday. The new-orders sub index remained unchanged at 49, while the new export orders subindex stood at 46.3, compared to 47.2 in January.

Meanwhile, the non-manufacturing PMI, which measures business sentiment in the services and construction sectors, climbed to 51.4 from 50.7 in January.

Beijing has vowed to hit the ground running on the economic front in 2024, as most observers have predicted an official target of 5 per cent expansion of gross domestic product (GDP) to be announced this year.

The Chinese leadership has already heightened its rhetoric on economic issues, making promises for a unified market, improved business environment and an escalation in consumption during several high-profile conferences in February.

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Stock Indices

Phan Vee Leung
CIO & Founder, TrackRecord