A Tug of War Between Hawks and Doves

The Fed members are on the battlefield, fighting the doves. Loretta Mester said there is no rush to cut rates and Neel Kashkari said that the Fed hasn’t reached its inflation goal yet. The game is now being played for a May cut, with around two thirds probability attached to it.

CAD Strengthened After Statements from Head of Bank of Canada

It is worth noting that the efforts of the Bank of Canada have reduced inflation in the country from its highest level of 8.1% in June 2022 to 3.4% in December 2023. It is possible that the path to the target rate of 2% may take more time. And then rates will remain high for longer, as the head of the Bank of Canada suggests. Reuters writes that the first rate cut may only come in the summer.

NZD/USD Shrugs after NZ Employment Report

New Zealand’s employment report for the fourth quarter indicated that the labour market remains relatively strong. Employment rebounded with a gain of 0.4% q/q, after a 0.2% decline in the third quarter. This edged above the market estimate of 0.3%. Wage growth eased to 3.9% y/y, down from 4.1% in Q3 and higher than the market estimate of 3.9%. Finally, the unemployment rate crept higher to 4.0%, up from 3.9% but below the market estimate of 4.0%.

Ethereum Nears Recent Turning Point

Ethereum was a major growth driver, gaining 1.6% on the day to $2,350 and reversing to the downside as it approached $2,400. This is the same place where we saw a reversal at the end of January and for a month since the beginning of December. In December, the coin managed to hold above this reversal level for almost a fortnight, but with the current lull in the markets, a temporary pullback to the lower end of the range towards $2,200 looks more likely.

Sunset Market Commentary

In the absence of key eco data, both in the US and Europe, central bankers’ talk today was again earmarked as the main guide for bond markets. ECB board member Isabel Schnabel in the FT gave an in extenso assessment on the importance of the ECB walking the last mile to defeat inflation. She warns on a slowdown in the disinflationary process, especially in the services sector.

Australia & New Zealand: What's Up For The Down Under Economies?

The Reserve Bank of Australia (RBA) held its policy rate steady at 4.35% this week as expected, and its accompanying announcement was more hawkish than expected. The RBA did not rule out a further increase in interest rates, saying inflation—especially services inflation—is still high.

SP 500 Hits Record, Chinese Deflation Deepens

But the S&P500’s rally is backed by the anticipation of upcoming rate cuts and robust earnings. And sentiment in both yields and earnings remains supportive. In this respect, Disney followed in the footsteps of its happy tech peers yesterday and rose almost 7% in the afterhours trading after reporting better than expected earnings and issuing an upbeat profit outlook.

A Modest Sliver Lining for China and Hong Kong Stock Markets

Since the start of this week, the China and Hong Kong stock markets have rallied after one of the benchmark China stock indices sank to a 5-year low due to more forceful measures that clamped down on short-selling activities and President Xi’s in-person meeting with the China Securities Regulatory Commission that led to the intermediate replacement of the regulator party chief yesterday, 7 February.

Euro Doesn’t Give the Impression to be Able to Really Profit from (Temporary) USD Softness

EUR/USD extended its rebound off the 1.0724 support (close 1.077), but the euro doesn’t give the impression to be able to really profit from (temporary) USD softness. USD/JPY was the exception as it is again nearing the 148.84/89 YTD peak levels. Sterling remained in good shape (close 0.8531), but the key 0.8493 support stays out of reach.

Australian Dollar Dips as China's Inflation Declines

China’s consumer prices continued to slide and dropped in January by 0.8% y/y, the steepest decline since September 2009. This was lower than the market estimate of -0.5% and marked a fourth straight decline. The main driver of the downswing was lower food prices. Monthly, CPI rose 0.3%, up from 0.1% in December and below the market estimate of 0.4%. Producer prices fell by 2.5% y/y in January, the sharpest decline in four months.