Stock Indices Near Highs, Fed Rate Cut Expectations Rise & Key Economic Events Await ?????

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*Figures correct as of March 4, 2024

Stock indices consolidate ??

At the end of last week, many global stock indices were consolidating near record highs. In the previous week, markets flew higher following the release of a blow-out set of results and forward guidance from generative AI chip designer NVIDIA.

Last week saw the release of US Core PCE, the Fed’s preferred inflation measure- January’s year-on-year number showed a continuation of the downward trend in this data series, coming in at +2.8% from +2.9% in December. Investors had been worried that Core PCE may have followed the CPI and PPI in ticking higher, but this latest release has reduced concerns that the Fed may push out its first rate cut beyond June. Consequently, there was a pick-up in positive market sentiment and stock indices and precious metals rallied on the news while the US dollar lost ground.??

Check out the US 500.

The outlook for rate cuts????

As far as the CME’s FedWatch Tool is concerned, the probability of a 25-basis point rate cut from the US Federal Reserve in June has risen a few percentage points. Investors continue to expect the Fed to cut rates by 75-100 basis points by the end of this year.

Last week we heard from several Fed speakers: the general consensus was that the pace of rate cuts would depend on upcoming economic data, and all suggested that the first rate cut would be sometime this year, with the June meeting the earliest possibility. It’s interesting to note however, that no one talked down rate cuts to the extent of warning of the possibility of a rate hike first.

In terms of stock market performance, February was a solid month with gains of 2.2%, 5.2% and 6.1% for the Dow, S&P and NASDAQ respectively. Market sentiment remains bullish, and there seems little appetite for profit-taking, but the upside momentum has slowed. The major indices are trading sideways and look like they need to consolidate further to build up energy necessary for further gains.

Traders should keep an eye on the broad-based Russell 2000 index which has failed to make new highs recently. It will boost sentiment if it starts to pick up from here, but it should ring a big warning bell if it now turns lower and fails to confirm a wider bullish mood in stocks.?

Check out the US 2000.

Looking ahead???

Mr Powell goes to Washington ????

As you can see from the economic calendar below, there are some major events happening this week, many of which have the potential to move markets.

• Considering the UK, Chancellor Jeremy Hunt will deliver his Budget on Wednesday.

This is likely to be the Conservatives’ last opportunity to persuade voters that they are the party of low taxation and fiscal responsibility, but it seems unlikely that Mr Hunt’s ninety or so minutes at the dispatch box will do much to counter the results of the past fourteen years of Conservative government.

• More importantly, as far as markets are concerned, US Federal Reserve Chair Jerome Powell will deliver the first of two days of testimony in Washington.

He will first address the House Financial Services Committee, and then the Senate Banking Committee on Thursday. His testimony won’t change, but the subsequent questions may well do- bear in mind, that this is Presidential Election year, and the Fed is mulling the timing and degree of future monetary easing.

This follows the series of aggressive rate hikes which have taken its key Fed Funds rate to its highest level since early 2001. Mr Powell and his colleagues must be thoroughly fed up with insisting their rate decisions are not political, but it is a charge often made by politicians themselves.

• In addition to day-two of Mr Powell’s testimony, Thursday sees the European Central Bank (ECB) announce its rate decision.

Like the Fed, the ECB is not expected to cut rates this month.

• Finally, Friday brings the latest US Non-Farm Payroll update.

The fact that unemployment has remained near historical lows despite all the rate hikes we’ve seen, has been something of an economic anomaly. It has also concerned central bankers who have worried that the tight labour market would lead to ever greater wage demands which in turn would lift inflation. This hasn’t been the case – so far.??

Check out the US Dollar Index.

Crude oil???

Front-month US Light Crude oil was up 2.7% in February, but still trading below $80 per barrel. On Friday it had another go at taking out the bottom end of a band of resistance between $79.20-$79.70. This was its fifth attempt since November, and its second attempt last week alone. So far crude hasn’t had enough upside momentum to take it through here and on to $80.

Last week’s update on US inventories showed a bigger-than-expected build in crude stockpiles, but the draw on gasoline was bigger than expected while the draw on distillates was much lower than anticipated. All-in-all it was a bit of a wash.

On Friday, China’s Manufacturing and Non-Manufacturing PMIs held up okay, raising hopes that Chinese energy demand would do likewise. Going into March, the market is waiting for an update from OPEC+ concerning ongoing production cuts announced back in November. The cuts only covered the first quarter of this year, but the expectation is that they will be extended at least until the end of June. This should help support the oil price, while a failure to extend would see the price floor disappear.?

Check out US Light Crude.?

The economic calendar???

?? Monday sees the release of Australia’s MI Inflation Gauge, Job Advertisements and Building Approvals. Then we have Swiss CPI and Eurozone’s Sentix Investor Confidence and end the day with an update on Tokyo Core CPI.

?? Tuesday kicks off with China’s Caixin Services PMI. Then we have French Industrial Production and throughout the morning we have updates on Services PMIs from Spain, Italy, France, Germany, the Eurozone and the UK. US Services PMI also comes later in the day. Also, from the US we have Factory Orders.

?? Wednesday brings the latest update on Australian GDP. Then there’s the German Trade Balance, UK Construction PMI, the UK Budget and Eurozone Retail Sales. There’s also a rate decision from the Bank of Canada. From the US we have the monthly ADP Non-Farm Employment Change report, JPLTS Job Openings, Crude Oil Inventories and Wholesale Inventories, but the day’s big event is Fed Chair Jerome Powell’s first day of testimony in Washington before the House Financial Services Committee.

?? There’s a clutch of second order data releases on Thursday morning before the European Central Bank’s (ECB) rate decision announcement and monetary policy statement at 13:15 GMT. This is followed half an hour later by ECB President Lagarde’s press conference. After this we have Jerome Powell’s second day of testimony, this time before the Senate Banking Committee.

?? The week rounds off on Friday with the latest US Non-Farm Payroll report, which has the potential to provide volatility going into the weekend.??

This week’s key Q4 earnings???

?? Monday:??

Sea Limited, GitLab, Semrush, Groupon, GreenTree, Stitch Fix.?

?? Tuesday:?

CrowdStrike, Ross Stores, Ferguson, NIO Inc, Riot Platforms, Nordstrom, Grindr.?

?? Wednesday:?

JD, Brown-Forman, Campbell Soup, THOR Industries, Abercrombie & Fitch, Foot Locker, Victoria’s Secret.?

?? Thursday:?

Broadcom, Costco, Marvell Tech, ING, MongoDB, BJ’s Wholesale, Ciena, The Gap.?

?? Friday:?

Oracle, Algonquin Power, Genius Sports, Kronos.?

*All views and opinions are analysis not advice. You should seek independent financial advice where required.

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