Fed Waller Suggests Delaying Rate Cuts by a Few Months (!) Should Not Have Substantial Impact

In absence of major economic shocks, Waller suggested that delaying rate cuts by a few months (!) should not have a substantial impact on the real economy in the near term.

Crypto Market Opts for Caution

The crypto market lost around 1.2% overnight to $1.95 trillion, according to CoinMarketCap. The Crypto Fear and Greed Index rose to 76 (Extreme Greed). This is a somewhat lagging indicator, reflecting sentiment the day before rather than at the moment. Since Friday morning, crypto has been dominated by selling despite all-time highs in many global equity indices. As a very sensitive indicator, the crypto market may be signalling that investors have become a little more cautious.

Sunset Market Commentary

ECB members came out “en masse” today, resembling the recent push by the US central bank. Hawkish Austrian ECB Holzmann immediately pulled an interesting string. He supports our “sequence” call, stressing that he didn’t see any circumstances for the ECB to cut policy rates before the Fed.

Week Ahead – US and Eurozone Inflation, RBNZ Meeting to Test Rate Cut Bets

The Fed is in no rush to ease policy and markets are finally starting to come round to the prospect of no rate cuts before the summer. Yet, stock markets have remained bullish, suggesting that the fact alone that interest rates will start to fall this year is enough to spur optimism.

US Data Wraps Up This Week

In the US, the University of Michigan's preliminary consumer survey (including inflation expectations) and January producer prices figures (PPI) are due for release in the afternoon. Following the strong CPI earlier this week, markets will be very attentive to any additional signs of inflationary pressures building up.

Altcoins Temporarily Benefit from Bitcoin's Pause

The cryptocurrency market is up 1.7% from 24 hours ago, with Bitcoin stuck between $51.5K and $52.5K. Buying interest has focused on the major altcoins such as BNB (+3.6%), XRP (+3.5%) and Cardano (+4%), which were lagging the day before, but they are just trying to keep up with Bitcoin’s rise. In our opinion, altcoins’ time will come when the first cryptocurrency has reached its historic highs and looks too expensive. But it could be another year before that happens.

GBP/USD Yawns as UK Retail Sales Soar

UK retail sales were more than impressive, surging 3.4% m/m in January. This crushed the market estimate of 1.5% and followed a 3.3% decline in December. The reading was the largest monthly gain since April 2021. The sharp gain was driven by increased sales of food and fuel. On an annualized basis, retail sales rebounded with a 0.7% gain, compared to a 2.4% decline in December and well above the market estimate of -1.4%.

RBNZ's Orr – Inflation Expectations Still Too High

The Reserve Bank of New Zealand has made inflation its top priority and the Bank’s steep rate-hiking cycle has brought inflation lower. Still, at the current clip of 4.7%, inflation is more than double the 2% midpoint of the target band of one to three percent. Earlier this week, New Zealand released inflation expectations, which eased to 2.5% in the first quarter, down from 2.7% in Q4 2023 and lower than the forecast of 2.6%. This was the lowest level since Q3 2021.

Weekly Focus

The overall theme for markets this week continued to be the scaling back of expectations of rate cuts especially in the US as the economy looks stronger, and inflation higher, than expected. However, the change should not be exaggerated. Inflation expectations are well in line with targets and indicators for banking activity in both the US and Europe confirm that the current stance of monetary policy is having a dampening effect on economies.

Canadian Inflation in January Likely Eased as BoC Contemplates Interest Rate Cut Timing

Stripping out volatile components like food and energy, we expect price growth to hold at 3.4% year-over-year with the recent months’ mixed underlying drivers continuing. More than a quarter of price growth overall is still coming from higher mortgage interest costs that are a direct result of earlier BoC interest rate increases. If we exclude that component, price growth would already be back within the BoC’s 1% to 3% inflation target range.