RATE CUT BETS AND INFLATION DATA
In the week beginning February 26, 2024, market attention turns to inflation data, which will serve as a litmus test for rate cut expectations. The spotlight falls on crucial indicators such as the US core PCE and Eurozone flash CPIs, underscoring the significance of inflation concerns in the current economic landscape.
FED’S STANCE AND MARKET OPTIMISM
While the Federal Reserve adopts a cautious approach towards easing policy, market sentiments lean towards the prospect of no rate cuts before summer. Despite this, bullish stock markets persist, indicating a sense of optimism driven by the anticipation of declining interest rates later in the year.
US DOLLAR’S FATE HINGES ON TIMELY ACTION
The fate of the US dollar hangs in the balance, with any further delay in rate cuts potentially jeopardizing its year-to-date uptrend. The upcoming data releases, particularly the personal income and outlays report for January featuring the core PCE price index, will play a pivotal role in shaping market dynamics ahead of the March FOMC meeting.
EUROZONE’S SUBDUED INFLATION AND POLICY OUTLOOK
In the Eurozone, inflationary pressures remain relatively subdued compared to the US, attributed largely to a weaker economy. As the European Central Bank’s next policy meeting looms, speculation intensifies regarding the possibility of rate cuts. Headline inflation dipped to 2.8% year-on-year in January, setting the stage for key decisions in the coming months.
MARKET IMPACT AND DECISION-MAKING
The implications of inflation data reverberate across global markets. A higher inflation number in the US could delay rate cuts, leading to a strengthening dollar and a downturn in the stock market. Similarly, Eurozone data will influence the likelihood of an early rate cut, potentially exerting downward pressure on the Euro.