Another set of disappointing inflation data…

Thoughts of the Day

The US Producer Price index for January rose +0.9% YoY (PREV+1.0%, EXP +0.6%). Core PPI rose +2% (PREV +1.7%, EXP +1.6%). Investors reacted with bond yields rising and risk assets selling off, but the trend isn’t conclusive for now. The US Federal Reserve will likely wait for more data on the inflation front before making their mind up about their future policy moves.

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Week Ahead

Monday:
Tuesday: The Australian Monetary Policy Meeting Minutes will be released.

The Canadian Consumer Price Index will show that prices rose +3.2% on an annual basis in Canada in January, down from +3.4% in December.

Wednesday: The Federal Reserve meeting minutes will be released. May provide more details of the Federal Reserve’s plan to cut interest rates this year.

Thursday: Purchasing Managers Index from the EU, US and the UK will be released. 

The ECB Monetary Policy Meeting Accounts will be released as well.

Friday:

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What Happened Yesterday

Market Movements as of New York Close 16 Feb 24 (18 Feb for Cryptos)

The annual rate of producer inflation for January 2024 (Producer Price Index, PPI) in the US slightly decreased to +0.9% from +1% in December, surpassing the anticipated +0.6%. Meanwhile, core producer prices in the United States experienced a +2% year-on-year increase in January 2024, up from a +1.7% rise in December and exceeding the predicted +1.6%. Additionally, producer prices for final demand in the US saw a month-over-month increase of +0.3% in January 2024, marking the most significant rise in five months after a -0.1% decrease in December and outpacing the expected +0.1%.

The February University of Michigan’s consumer sentiment index in the US rose to 79.6 from 79 in January, reaching its highest point since July 2021, yet it fell marginally short of the anticipated 80, according to preliminary data. Preliminary estimates from the University of Michigan Consumer Survey also indicated that inflation expectations for the coming year in the United States increased slightly to +3% in February 2024, up from a three-year low of +2.9% in the previous month. Meanwhile, the inflation outlook for the next five years remained steady at +2.9%, unchanged from January and December.

The US Treasury Yield curve inversion widened to 0.34% as the US 2-year bond yield rose +0.08% to 4.64% while 10-year yield edged higher by +0.06% to 4.30%.

The US stock futures traded sideways through the Asian hours. However, things started to become more exciting during the London hours as the S&P 500 futures climbed to an intraday high of 5059.25 (+0.20%) before falling -0.58% to 5030 after the release of the US PPI data.

The US stock market opened weak following the release of the US PPI data. There were multiple attempts made through the day to bounce from the weakness. However, the weak risk sentiment eventually prevailed. As a result, the S&P 500 lost -0.48% (high: +0.18%, low: -0.60%), the Dow Jones slid -0.37% (high: +0.13%, low: -0.49%) while the Nasdaq fell -0.90% higher (high: +0.10%, low: -1.02%).

The crypto market continues to grind higher with breaking above the 52,000 level.
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Headlines & Market Impact

China’s Wang Yi tells Blinken U.S. should lift sanctions on Chinese firms

Notable Snippet: Washington should lift sanctions on Chinese companies and individuals, and that attempts to de-couple from China would only hurt the United States, China’s Foreign Minister Wang Yi told U.S. Secretary of State Antony Blinken.

The United States should lift the sanctions and not harm China’s legitimate development rights, Wang told Blinken on Friday on the sidelines of a Munich security conference, according to a statement from China’s foreign ministry.

Washington has imposed sanctions on various Chinese companies that it accuses of working with China’s military despite denials from the firms. U.S. sanctions have also been imposed on individuals and entities over alleged human rights abuses in the Chinese region of Xinjiang.

Sino-U.S. relations have shown signs of improvement in recent months as both sides took steps to re-establish channels of communication after ties between the two global superpowers sank to their lowest levels in decades.

“Making ‘de-risking’ into ‘de-China’, and building ‘small yards and high walls’ and seeking ‘decoupling from China’” will only backfire on the U.S. itself, Wang told Blinken.

Wang also reiterated that the United States should abide by the one-China principle, if it truly wanted stability in the Taiwan Strait.

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TSX climbs to 22-month high as mining shares rally

Notable Snippet: The Toronto Stock Exchange’s S&P/TSX composite index (.GSPTSE) ended up 32.92 points, or 0.2%, at 21,255.61, its highest closing level since April 2022. For the week, the index was up 1.2%, snapping a two-week losing streak.

“It does look like on both sides of the border the price action points to buying on the dip,” said Elvis Picardo, portfolio manager at Luft Financial, iA Private Wealth. “The trigger for that is because the soft landing in the U.S. is very much in play.”

U.S. producer prices increased more than expected in January, giving Federal Reserve policymakers fresh validation for their wait-and-see approach to cutting interest rates. It follows hotter-than-expected U.S. consumer price data on Tuesday.

“Even though we’ve got a couple of strong inflation prints in the U.S, the expectation continues to be that the trend is lower for inflation,” Picardo said.

Canada sends about 75% of its exports to the United States, including commodities.

The materials group, which includes precious and base metals miners and fertiliser companies, added 0.9% as gold and copper prices rose.

Energy also ended up, gaining 0.5%, as the price of oil settled 1.5% higher at $79.19 a barrel.

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China’s travel spending during Lunar New Year holidays beats pre-COVID levels

Notable Snippet: Tourism revenues in China during the Lunar New Year holidays that ended on Saturday surged by 47.3% year-on-year and surpassed 2019 levels, thanks to a domestic travel boom amid a longer-than-usual break, official data showed on Sunday.

The data may offer temporary relief to policymakers as the world’s second-largest economy has been facing deflationary risks amid weak consumer demand, but the sustainability of the tourism boost is uncertain and the tourism revenue per trip remained below the pre-pandemic level.

During the holiday, known as the world’s largest annual migration, tourist attractions across the country witnessed massive crowds.

Domestic tourism spending jumped by 47.3% to 632.7 billion yuan ($87.96 billion) from the same holiday period in 2023, according to the data by the Ministry of Culture and Tourism.

The number of domestic trips made during this year’s holiday grew by 34.3% from a year ago, totalling 474 million.

Compared to the 2019 Lunar New Year holiday before the COVID pandemic struck the country, domestic tourism spending rose 7.7% and domestic trips increased 19%, according to the ministry’s data.

But the holiday in 2024 lasted for eight days, one day more than the Lunar New year break in 2019.

The ministry did not give a breakdown of the tourism spending per trip, but according to Reuters calculations based on the ministry data, average spending per trip during the holiday this year reached 1,335 yuan, down 9.5% from 1,475 yuan per trip in 2019.

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Phan Vee Leung
CIO & Founder, TrackRecord