Should we be worried about inflation resurging?

Thoughts of the Day

The recent US CPI for January, released on Tue spooked investors and led to a sell-off in US stocks and a spike in US bond yields. However, US FED will be looking at the “totality” of economic data rather than just one or two prints. We believe that though it would have been better for inflation to have been lower than expected, the path to interest rate cuts remains intact for now.

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Day Ahead

ECB President Lagarde is slated to testify before the Committee on Economic and Monetary Affairs of the European Parliament, in Brussels. Hints about the direction of future policy moves might surface.

The US Retail Sales is expected to fall -0.1% month-on-month, compared to a gain of +0.6% in December.

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What Happened Yesterday

Market Movements as of New York Close 14 Feb 24

Fedspeak:
Barr (current voter, known centrist):
“Data suggests Fed is on a good path, but too early to say if there will be a soft landing. January jobs and inflation numbers were stronger than expected, but the Fed is looking at the totality of numbers. Need to see continued good data before advocating for rate cuts.”
(Barr’s comments have been mirroring Fed Chair’s Powell with regards to monetary policy. )

In January, Australia reported an unemployment rate of 4.1%, slightly higher than the anticipated 4.0% and an increase from the previous 3.9%, as per the Australian Bureau of Statistics. Additionally, the Employment Change for January was a modest increase of +0.5K, a recovery from December’s decline of -65.1K but still below the expected +30.0K. Additionally, the Labour Force Participation Rate in Australia for January remained steady at 66.80%, showing no change from the previous period. The AUD fell -0.18% against the USD in reaction, falling from 0.6498 to 0.6486.

In January, the UK’s CPI increased by 4.0% year-on-year, consistent with December’s rate and below the expected 4.2%. Core CPI, which excludes food and energy, also maintained its previous rate of +5.1% year-on-year, missing the forecasted +5.2%. Monthly, the CPI saw a -0.6% decrease, against the anticipated -0.3% drop. Finance Minister Jeremy Hunt said, “we have made huge progress in bringing inflation down.”

The US Treasury Yield curve inversion narrowed to 0.29% as the US 2-year bond yield fell -0.08% to 4.56% while 10-year yield slipped -0.04% to 4.27%.

The US stock futures traded sideways through the Asian trading session. However, momentum started to build when the London hours started with the S&P 500 futures rising +0.51% just before the New York session began.

The US stock market opened higher from Tuesday. It then experienced a slight pullback before the market continued to make its way higher. As a result, the S&P 500 gained +0.96% (high: +1.00%, low: +0.07%), the Dow Jones rose +0.40% (high: +0.44%, low: -0.20%) while the Nasdaq popped +1.18% (high: +1.22%, low: +0.11%). 

The crypto market continues to creep higher as the day of the halving approaches as well as continued interest in the Bitcoin ETFs.
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Headlines & Market Impact

Japan’s economy slips into recession, raises BOJ policy uncertainty

Notable Snippet: Japan’s economy slipped into a recession as it unexpectedly shrank for a second straight quarter on weak domestic demand, data showed on Thursday, raising uncertainty about the central bank’s plans to exit its ultra-easy policy sometime this year.

The surprisingly weak performance saw Japan lose its title as the world’s third-largest economy, replaced by Germany.

Gross domestic product (GDP) fell an annualised 0.4% in the October-December period after a 3.3% slump in the previous quarter, government data showed. It compared with a median market forecast of a 1.4% increase.

The weak data may cast doubt on the Bank of Japan’s forecast that rising wages will underpin consumption, and justify phasing out its massive monetary stimulus.

“There’s a risk the economy could shrink yet again in the January-March quarter due to slowing global growth, weak domestic demand and the impact of the New Year quake in western Japan,” said Takuji Aida, chief economist at Credit Agricole.

“The BOJ could be forced to sharply downgrade its rosy GDP forecasts” for 2023 and 2024, he added.

The yen was little changed following the release of the data and last stood at 150.42 per dollar, pinned near a three-month low hit earlier in the week.

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U.S. ‘very concerned’ about China’s dominance as a critical minerals supplier, energy chief says

Notable Snippet: U.S. Energy Secretary Jennifer Granholm on Wednesday said the country is “very concerned” about China’s grip on the global supply chain for critical minerals.

Her comments come amid skyrocketing demand for minerals and raw materials vital to the energy transition. The end use of metals such as nickel, copper, lithium and cobalt are wide-ranging and include electric vehicles, wind turbines and solar panels.

China is the undisputed leader in the critical minerals supply chain, accounting for roughly 60% of the world’s production of rare earth minerals and materials. U.S. officials have previously warned that this poses a strategic challenge amid a pivot to low-carbon energy sources.

“It’s one of the pieces of the supply chain that we’re very concerned about in the United States. We do not want to be over-reliant on countries whose values we may not share,” Granholm told CNBC’s Silvia Amaro on Wednesday when asked about China’s dominance as a critical minerals supplier.

“But it also means that we will be partnering with friends, like Australia, like Canada, and it’s one of the subjects that we are raising here at the International Energy Agency,” Granholm said.

“We know all countries want to ensure that we have a critical stockpile of critical minerals and that we are allowed to diversify the supplies of those stockpiles. Both internationally and domestically, this is a focus of ours.”

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Nvidia passes Alphabet in market cap and is now the third most valuable U.S. company

Notable Snippet: Nvidia surpassed Google parent Alphabet in market capitalization on Wednesday. It’s the latest example of how the artificial intelligence boom has sent the chip maker’s stock soaring.

Nvidia rose over 2% to close at $739.00 per share, giving it a market value of $1.83 trillion to Google’s $1.82 trillion market cap. The move comes one day after Nvidia surpassed Amazon

 in terms of market value.

The symbolic milestone is more confirmation that Nvidia has become a Wall Street darling on the back of elevated AI chip sales, valued even more highly than some of the large software companies and cloud providers that develop and integrate AI technology into their products.

Nvidia shares are up over 221% over the past 12 months on robust demand for its AI server chips that can cost more than $20,000 each. Companies like Google and Amazon need thousands of them for their cloud services. Before the recent AI boom, Nvidia was best known for consumer graphics processors it sold to PC makers to build gaming computers, a less lucrative market.

Google was largely expected to benefit from AI, especially since employees at the company pioneered many of the techniques — such as transformer architecture — used in cutting-edge models like ChatGPT.

Nvidia is now the third largest U.S. company, only behind Apple and Microsoft. Nvidia reports quarterly earnings on Feb. 21. Analysts expect 118% annual growth in sales to $59.04 billion.

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Phan Vee Leung
CIO & Founder, TrackRecord