JASPER’S MARKET SQUAWK 09-01-2024
Markets Finally Rebound
US equities ended their pullback as Americans reported feeling better about inflation. It came after Dallas Fed President Lorie Logan signalled it was time to consider QT over the weekend. Treasury yields and the dollar declined while tech gained big.
Chart: GBPUSD
Key Factors for Today
- Inflation Optimism and Fed’s Mixed Messages on Risks Weigh on Dollar
- BOE’s Rate Cut Dilemma Amidst UK Spending and Potential Energy Crisis
- Crude Slumps as Saudi Arabia Price Cuts Reflect Demand Woes
- ECB Rate Cuts Could Come Sooner Than Markets Expect
US Inflation Expectations Optimism Weighs on Treasuries, Dollar
The New York Fed’s Survey of Consumer Expectations showed that Americans expect inflation to be at 3% a year from now, lower than economists’ expectations in the upcoming CPI due Thursday. Fed Governor Michelle Bowman said there were still some “important upside inflation risks” in the outlook, but her stance on policy has “evolved” to no more hikes. In contrast, Atlanta Fed President Raphael Bostic said monetary policy needs to remain tight. Lower Treasury yields weighed on the greenback, with prices below 102 in the DXY opening the door to 101.50. On the flip side, 102.45 remains a stiff resistance.
BOE Cut Outlook Challenged by Spending and Energy Concerns
According to Barclaycard data, UK consumer spending increased 2.3% year-over-year in December compared to 2.9% prior. Lower inflation contributed to the slower growth in consumer spending, with the bank expecting further drops seen as providing more spending power despite weak economic growth. In contrast, UK retail sales grew 1.9% year-on-year in November compared to 2.6% prior due to dampened spending during the festive period. Cable rose past 1.27 on Monday but was little changed after the retail sales data, facing resistance at 1.2767. Meanwhile, a former BOE official said that the BOE will be unable to start cutting rates in 2024 as tensions in the Middle East could trigger another energy crisis.
Oil Tumbles as Saudi Price Cuts Signal Demand Concerns
Oil prices dropped over 4% to under $71 a barrel after Saudi Arabia’s price cut announcement indicated weaker demand. Saudi Arabia cut its selling prices for all grades of crude by up to $2 per barrel for February, the deepest cut in 13 months. Concerns about weaker oil demand outweighed factors that could boost prices like a force majeure declared on Libya’s largest oil field and risks to shipments in the Red Sea. The former initially pushed oil prices up, but rising crude supply from some OPEC members outweighed the conflict risks, exposing the $68.80 unless bulls reclaim 71.80.
Deutsche Bank Anticipates Quicker ECB Rate Cuts
Deutsche Bank downgraded European stocks to neutral in the short term, citing market positioning and less positive economic surprises. The bank believes that the ECB will cut interest rates faster than expectations but remains bullish on European stocks for 2024, saying positioning is not yet in overbought territory. Data from Monday showed a lower rise in German factory orders of 0.3% compared to 1%, and eurozone retail sales contracted 0.3%, as expected. However, the month prior was revised up to 0.4%, and investor morale improved to its highest level since May for the third consecutive month in January. Overall, the euro could not gain against a slightly weaker dollar on Monday, closing the season mixed, with an impending breakout to 1.09 or 1.10 in focus.
On The Docket
- German Industrial Production
- EA Unemployment Rate
- MX Inflation Rate
- US Trade Balance
- Fed Barr Speech
- ECB Villeroy de Galhau Speech
- API Crude Oil Stock Change
FX 1-Day Relative Performance (USD)
- Aussie and Kiwi 0.23% and 0.2% lower
- Euro unchanged while Pound 0.1% down
- Loonie 0.11% lower, Franc 0.04% in red
- Japanese yen 0.11% in the green zone
- Gold 0.33% up while Silver 0.04% down
- WTI 0.17% down while Brent unchanged
- Natural gas 1.44% into the red zone
