Twiddling thumbs ahead of a US data barrage

Markets

On Tuesday, U.S. stocks ended the day with little change, as investors remain grounded ahead of critical economic data, including the Federal Reserve preferred inflation gauge, which is expected to shed some light on the timing of the first Fed cut. With the corporate earnings season nearing the end of the runway, investors shifted their focus back to economic indicators and the anticipated trajectory of U.S. interest rates. However, in a data-dependent world, when have we never focused on economic data of one type or another?

Traders are keenly aware that the recent components of the Consumer Price Index (CPI) and Producer Price Index (PPI) have influenced the Personal Consumption Expenditures (PCE), and it is unlikely that they will receive an inflation print below the Federal Reserve's target rate. This contrasts with the sub-2% prints observed over the past six months. The January CPI and PPI data have shown unexpectedly high readings, hawkishly altering the market landscape. The rates market has shifted from an anticipated six rate cuts by the Federal Reserve in 2024 to just three, indicating that investors might find themselves on the wrong end of the stick if a top-side beat is big enough to threaten the 3 cut narrative.

Treasury yields are again on the rise, driven by a surge in corporate and government issuance, adding pressure to an already fragile market. This yield increase coincides with a notable uptick in U.S. inflation figures and robust job market readings. Simultaneously, the Federal Reserve has been pushing back against expectations of rapid rate cuts, contributing to the upward trajectory of yields.

This development is often viewed as a negative signal for stocks, as they now face competition from bonds for investor favours. However, the traditional correlation between rising yields and falling stock prices is changing in the A.I. frenzy, albeit temporarily. Still, more investors are beginning to acknowledge that companies like Nvidia, which have posted staggering increases in sales and profits, should not be dismissed as bubbles despite concerns from bearish analysts.

The critical question is whether these high-growth companies can sustain their targets over the medium to long term. While their recent performance has been impressive, smart money will always remain cautious about the sustainability of such rapid expansion. 

All in all, Wall Street shimmied within narrow trading ranges and the 

limited movements are unlikely to provide significant direction for Asian markets as traders are happy to twiddle thumbs ahead of a U.S. data barrage

Cryptocurrencies

Alongside the surge in tech stocks, cryptocurrency prices have also increased dramatically. Bitcoin, for instance, surpassed the $57,000 mark before slightly retreating below it, marking a gain of approximately one-third since the beginning of the year. The introduction of new exchange-traded funds (ETFs) that hold bitcoin has simplified investing in the cryptocurrency but has not necessarily reduced the risk and volatility.

Among the nine ETFs, BlackRock's iShares Bitcoin Trust (IBIT) has emerged as the focal point, drawing significant attention in early days -market activities. Blackrock's profits will be in for BTC windfall with the coins they bought in the $30,000 being sold to the new wave of investors + $50,000

Forex markets

 The dollar remained stable, while the yen experienced only marginal gains despite unexpectedly resilient Japanese inflation. However, F.X. markets are focused on the RNBZ, which is sometimes viewed as a harbinger of G-10 policy, although its migration swell is causing inflation problems. 

Net immigration alleviates the constraints on the labour market's supply by increasing the available workforce. However, it also tends to have an inflationary effect on rents and house prices.

Oil markets

Oil prices surged more than 1% in response to media reports suggesting that the Organization of the Petroleum Exporting Countries (OPEC) and Russia-led producers are contemplating extending the current output cuts of 2.2 million barrels per day (bpd) until the end of the year. This move aims to prevent oil inventories from experiencing significant build-ups.

Tuesday's increase in oil prices was further bolstered by an announcement from Russian officials regarding a six-month ban on gasoline exports starting March 1. This ban aims to curb price hikes and address fuel shortages in the domestic market. The decision may have been influenced by unplanned refinery outages in Russia, possibly exacerbated by escalating drone attacks from the Ukrainian military.