Market’s New Year hangover cure is lower US inflation and more Chinese deflation
Macro & Overnight
Last week saw a New Year market hangover following the pre-Christmas party mood.
Bond yields are higher (up 30 bps in the case of US and UK 10-yr benchmarks), energy prices and the dollar are higher, and equities have sold off.
Rising tensions in the Middle East and extended supply lines from Asia to Europe are the proximate causes. But sticky inflation data from Europe and continuing strong reported US employment trends also raise questions over the speed of future rate cuts.
For this week, US inflation data on Thursday will likely be the main event and offer critical input for the Fed’s rate decision in March.
There is also scope for further deflationary evidence in China with its inflation data on Friday. Investor sentiment remains negative in China and Hong Kong despite renewed support measures to stimulate activity.
Amidst this Chinese uncertainty, Taiwan goes to the polls this Saturday to elect its new President.
We also get UK GDP data on Friday, which are expected to show a slowing economy but not one yet in recession.
UK Company News
In the UK today, positive news is reported from two providers of CFDs and spread betting, reflecting improved market trading conditions in recent weeks. CMC Markets now expects to generate profits ahead of previous expectations by about 15%, while Plus500 updated that revenue and profits would be significantly ahead of current market expectations.
CMO, the online retailer of building materials, updated that while demand remains resilient, consumers have shifted towards smaller projects, driving lower profitability. Despite this warning, it reports market share gains and gross margin improvements.
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