Another Strong Batch of US Data, ECB Giving Little Away

US economic data continues to point to an economy that's doing very well despite the various headwinds including very high interest rates.

Money Markets Added to ECB Easing Bets

Money markets added to policy easing bets, fully discounting an April rate cut (not our preferred scenario) and discounting a cumulative 50 bps rate cuts by June and almost 150 bps by the end of the year. That’s more or less equal to a 25 bps rate cut at each and every meeting starting in April.

WTI Oil Technical: Approaching a Key Medium-term Resistance, At Risk of Mean Reversion Decline

WTI crude oil has started to evolve into a short-term uptrend phase reinforced by the recent liquidity infusion by China’s central bank, PBoC upcoming 50 bps cut on the RRR.

USD/JPY Steady after Tokyo Core CPI Falls Below 2%

Tokyo Core CPI reached a significant milestone today, falling to 1.6% y/y in January, after a December reading of 2.1%. This was the first time the indicator dropped below the Bank of Japan’s 2% target since May 2022. The main driver of the decline was lower energy prices. Tokyo Core CPI excludes fresh food but includes fuel. The Tokyo core-core index, which excludes fresh food and fuel prices, rose 3.1% y/y in January, down from 3.5% in December.

Ethereum Could End Consolidation With a Dip Towards $2000

Meanwhile, Ethereum, the second most-capitalised coin, has returned to the lower end of the consolidation it spent most of December in, losing since the start of the day and threatening to fall a notch lower to the $2100 area, which was the upper end of the consolidation in November. A decline here would be as logical a move as a BTCUSD pullback to $37500, which remains the main scenario. At the same time, however, be prepared for a brief dip towards $2000 due to cryptocurrency volatility.

Sunset Market Commentary

European bond markets still opened stronger in the wake of yesterday’s unconvincing press conference by ECB President Lagarde. The move lacked momentum though with first individual ECB members sounding more hawkish than Lagarde did. We must admit that it weren’t the most high-profile representatives though. Latvian ECB Kazaks admits that rates should start to go down, but that the central bank should be in no rush whatsoever to start the process.

Will Fed Push Back Against Imminent Rate Cuts?

There has been a notable repricing regarding the Fed’s future course of action since the beginning of 2024. From fully pricing in a 25bps cut in March, investors are now assigning around a 50% for such a move, despite former St. Louis Fed President James Bullard recently saying that he expects the Committee to start lowering interest rates as soon as March.

Fed Preview: Patience and Gradualism

The title of this preview quotes SF Fed's Mary Daly, a new FOMC voter for 2024, who was the last participant to comment on monetary policy outlook ahead of the January blackout. Next Wednesday, with no new economic forecasts, all eyes will be on Powell, who we expect to echo Daly and several of their colleagues' recent remarks, emphasizing cautious yet optimistic outlook.

Bank of England Preview

We expect the Bank of England (BoE) to keep the Bank Rate unchanged at 5.25% on 1 February, which is in line with consensus and current market pricing. We expect the vote split to be 9-0, although we stress that risks are two sided for a three-way split. Note, this meeting will include updated projections and a press conference following the release of the statement.

Canada's November GDP to Edge Higher for First Time Since May But Economy Still Looks Weak

The November Canadian gross domestic product (GDP) estimate released on Wednesday will probably tick higher for the first time in six months, but the economic backdrop to end 2023 still looks soft.