IG Morning Call

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Asia-Pacific stocks traded modestly lower on Monday, as many regional markets were closed for the Lunar New Year holiday period. News flow was limited over the weekend. European Central Bank Governing Council member Fabio Panetta stated that the ECB is nearing the point where it will need to shift to a less accommodative monetary policy stance. Futures point to a slightly higher open for European equities on Monday, with EuroStoxx 50 futures up 0.3%. US futures also point to a quiet start to an uneventful day. The Fed's Kashkari will speak this evening, but as a non-voter, his comments will carry relatively less weight. This week's main event will be US inflation data on Tuesday. 

 

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Asian markets struggled on Wednesday as expectations for Federal Reserve interest rate cuts later this year were pared back. This follows a strong U.S. jobs report and higher-than-expected inflation data. Market pricing for 2024 Fed rate cuts has fallen from around 160 basis points at end-2022 to just under 90 bps now. This is impacting other central banks globally. Traders now expect just one rate cut from the RBA this year instead of two previously. Higher U.S. rates will likely limit emerging market central banks' scope to ease policy. Japanese stocks like the Nikkei are nearing 1989 highs as the yen weakens past 150 per dollar. But Japanese authorities have stepped up warnings against rapid, speculative yen moves. UK inflation held steady on an annual basis in January, at 4%, but shrank by 0.6% between December and January, a bigger-than-expected fall.

[MongiIG]

The tech-fuelled rally in Asia, led by TSMC, has given a boost to equities in the region. Taiwan stocks reached a record high, with chip shares catching up with their global counterparts. Nvidia's surge in value, surpassing Google-parent Alphabet and becoming the third-most valuable US company, has also contributed to the positive sentiment in the tech sector. TSMC, a major supplier to Nvidia, experienced a significant increase in stock price, while the IT stocks index in Asia-Pacific outside Japan jumped 3%. The Nikkei continued to climb, supported by chip stocks, despite data which showed the Japanese economy fell into recession, contracting by 0.1% after Q3's 0.8% fall. The data from Japan has raised doubts about the timing of the Bank of Japan's exit from ultra-loose policy. The yen strengthened slightly but remains in the 150 per dollar region. In Europe, the afterglow of Nvidia's rise may also lift bourses, with futures indicating a higher open. The UK economy slipped into recession in Q4, shrinking by 0.3% after Q3's 0.1% fall. Interest rate futures are currently pricing in a 50% chance of a Bank Rate cut in June, but today's data will likely push that number higher.

 

[MongiIG]

The Nikkei 225 has been performing well, trading close to its record high from 1989. Despite Japan slipping into recession and losing its position as the world's third-largest economy, the stock market has continued to rally. The weakening yen has been beneficial for large Japanese companies with global operations, boosting their profits and supporting the export-reliant economy. However, a soft yen also raises the prices of food and energy imports, impacting consumers. The Bank of Japan is facing the challenge of balancing its monetary policy to support economic growth while considering the potential risks of maintaining negative interest rates for an extended period. U.S. stocks have also been performing well, reaching record highs, driven by expectations of rate cuts later in the year and the growth of the tech and AI sectors. Today's data includes the latest US producer price inflation and the preliminary Michigan confidence survey for February. 

 

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Chinese stocks have seen muted gains so far after the Lunar New Year break, despite hopes for a stronger rebound. More policy stimulus may be needed as deflation looms. Japan's Nikkei index hit near 32-year highs and is outpacing the gains in U.S. indexes. But its market cap remains below giants like Apple and Nvidia. Nvidia's upcoming earnings this week will test its high valuations. Its huge gain has accounted for over a quarter of the S&P 500's rise this year. In Europe, PMIs, sentiment surveys, wage data and inflation expectations will be in focus this week. The ECB is also eying high wage growth warily. Fed speakers and minutes are due this week. Markets have sharply scaled back bets on Fed rate cuts this year as inflation remains stubbornly high. Just 36% chance of a May cut now priced in versus fully priced in earlier. Today's US holiday for Presidents' Day means a quiet session lies ahead for European markets.

 

[MongiIG]

Despite the People's Bank of China (PBoC) cutting its five-year loan prime rate (LPR) by 25bps to 3.95% instead of the expected 15bps Chinese stocks remained under pressure. This even though the cut represented the first rate reduction since June 2023 and the largest since that rate was introduced in 2019. The Reserve Bank of Australia (RBA) minutes of its February monetary minutes which showed that it was appropriate not to rule out another rate hike, had little impact on the Australian dollar. Following Monday's US holiday European stocks hover near their recent multi-year highs amid a light economic calendar.

 

[MongiIG]

Following China stocks hitting multi-week highs, European and US Stock indices and the US dollar are under pressure as traders await speeches by Fed members Bostic and Bowman, FOMC minutes and Nvidia earnings. In the UK CBI industrial order expectations and a speech by MPC member Dhingra will be looked at and in the euro zone consumer confidence in an otherwise relatively empty economic calendar. 

 

[MongiIG]

Wednesday's FOMC minutes confirmed that the Fed remains "highly attentive" to inflation risks with some officials warning of downside risks in overly restrictive policy but others seeing risks of inflation progress stalling. Despite 'higher for longer' rates remaining on the cards, the US dollar stays under pressure with June rate cut expectations remaining unchanged at around 54%.
Equity indices rallied as Nvidia revenues soared in the fourth quarter as the world’s most valuable chip manufacturer benefited from a spending spree on artificial intelligence. The Nikkei 225 hit a new record high after 34 years while global stock indices advance on positive sentiment.

 

[MongiIG]

The Nikkei 225, several US and european equity indices are trading in new record highs following Nvidia's better-than-expected earnings amid global risk on sentiment. China's new home prices dropping the most in ten months and UK consumer confidence weakening in February have done little to dampen the buoyant mood but perhaps the German IFO business climate index may do so, at least in the short-term. The US dollar paused its recent spell of depreciation as US yields rallied to a near three-month high, initial jobless claims in the week ending February 17 fell to a five-week low and as existing homes sales rebounded to a five-month high, reinforcing the view of a soft landing in the USA. The euro remained stable as European Central Bank officials agreed that it was too early to discuss interest rate cuts, despite indications of cooling inflationary pressures across the Eurozone, as shown in the minutes from the most recent ECB meeting. 

 

[MongiIG]

Asian-Pacific stocks traded mostly flat to start the week, with light weekend newsflow focused on geopolitics. In Europe, equity futures point to a lower open after gains on Friday. The calendar this week focuses on inflation , with Japan kicking off the world tour of price data today. This is followed up by US PCE data on Wednesday, German CPI on Thursday and then the eurozone reading on Friday. While today begins quietly on the earnings front, UK earnings crowd the rest of the week, taking over from the US as reporting season there enters its final weeks. 

 

[MongiIG]

Global stocks have hit record highs recently but turned sideways this week as investors await important inflation data that could impact interest rate policy. Key economic data out later today includes French and German consumer confidence, Eurozone money supply, and US durable goods, consumer confidence, and home prices. Japanese inflation rose 2% year-over-year in January, exceeding expectations and supporting potential rate hikes in Japan this year. Japanese stocks hit a record high but then retreated to flat. US core price data on Thursday is the main event for the week, after a headline CPI reading that was stronger than expected earlier in February. On the calendar for today are US durable goods orders and consumer confidence. 

 

[MongiIG]

An uneasy calm has settled over global markets as traders wait for new inflation data later this week, which will provide clues about the interest rate outlooks in the U.S. and Europe. While Asian markets were subdued overall, there were some bright spots. New Zealand's central bank signaled a slightly less aggressive stance on rate hikes, sparking a rally in bonds and a dip in the Kiwi dollar. South Korean shares continued their relentless February rally, lifted by AI enthusiasm and moves to boost shareholder returns. The main events this week will be the U.S. inflation report on Thursday and the eurozone numbers on Friday, which are expected to drive market direction in the coming days. For now, caution prevails, with European and U.S. futures pointing to a muted open.

 

[MongiIG]

The US dollar and US indices steadied after a generally positive session in Asia ahead of today's widely anticipated US PCE inflation reading - the Fed's preferred inflation gauge - and as a partial US government shutdown has been averted. Speeches by Fed members Bostic and Mester might provide further colour but will probably have less of an impact. The Japanese Yen got a boost from the BoJ's Takata who hinted at stronger wage growth this year and that the central bank's price target was 'coming into sight.' Other than that the data in Japan was mixed with industrial production coming in worse than expectations but retail sales beating forecasts. German CPI for February and a speech by Bundesbank President Nagel will probably determine whether the DAX 40 will make yet another record high or flatten out like its peers.

 

[MongiIG]

The new month kicked off with several stock market indices hitting record highs on Thursday. Japan's Nikkei Average, the S&P 500, and the Nasdaq all closed at fresh record peaks. The gains were buoyed by tech stocks like NVIDIA and Advanced Micro Devices. Stock markets are in an upbeat mood after US inflation figures came in line with expectations on Thursday. This helped shape forecasts for the timing of future Fed interest rate cuts. It extended the ongoing global equity rally and also pushed Treasury yields lower. The DAX also reached a new all-time high on Thursday. Europe opens today waiting for inflation data that should indicate inflation is moving back toward the 2% target. This comes after data showed inflation dropping in countries like Germany, France and Spain thanks to lower energy and food prices. The ECB has maintained record-high interest rates since September. Also on the calendar today is the US ISM manufacturing PMI. 

 

[MongiIG]

Global markets have kicked off the week on a largely positive note ahead of major central bank meetings and data releases that will impact rate hike expectations. Japan's Nikkei index moved on past 40,000, having enjoyed a strong rally so far this year, buoyed by tech and AI stocks like Tokyo Electron. The Nikkei has benefitted from a shift towards tech nearshoring as foreign funds leave Chinese markets. Japanese Tokyo inflation data on Tuesday will test whether price rises are slowing as expected after base effects. Markets expect the Bank of Japan to end negative rates and yield curve control in April given strong wage growth. Japan may also declare an end to deflation this week, further supporting policy tightening. Upbeat Q4 GDP data suggests Japan may have avoided recession after all. China's National People's Congress this week could unveil new stimulus measures and set a 5% 2022 GDP target. Attention will turn to Fed Chair Powell's Congressional testimony midweek for any fresh rate hike signals. Friday's US jobs report could also shift expectations if hiring remains robust in February after January's strong gains.

 

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The start of China's annual National People's Congress saw a muted response, with the Hang Seng index falling over 2% after Beijing set a modest 5% growth target for 2024 without any major fiscal stimulus measures. However, mainland Chinese shares rose amid suspected state-backed buying of exchange-traded funds tracking the CSI 300 index. Global markets are bracing for an eventful week with Fed Chair Jerome Powell's testimony, the US jobs report, the ECB's policy decision, and the UK budget. Investors are continue to search for cues on the Fed's future rate hike path, with the Atlanta Fed president suggesting no pressure to ease policy amid sticky inflation risks. 

 

[MongiIG]

Asia is extending the broad rally in global stocks and risk assets after Fed chairman Jerome Powell kept the door open to interest rate cuts later this year, and U.S. bond yields drifted lower. Powell said the Fed still expects to cut rates later this year, even though continued progress on inflation "is not assured." However, Japan's Nikkei fell after USDJPY dropped towards Y148, as momentum builds that a move from the Bank of Japan to end negative interest rates could come as soon as this month, with Reuters pricing suggesting a 45% chance of a rate hike in March. The European Central Bank (ECB) meeting today is expected to be more divided and hesitant about committing to monetary easing. While the ECB is universally expected to keep its policy rate at a record 4%, policymakers are likely to reiterate the need for more evidence that inflation is under control and that ongoing wage increases will not give it another boost. The ECB President Christine Lagarde's message will be crucial, as new economic projections are likely to point to lower economic growth and inflation this year. Investors have penciled in three or probably four rate cuts by the end of the year. Interest rate futures are almost fully priced in for a first rate cut from the ECB in June, with a total easing of 88 basis points expected for all of 2024, down from the 150 points expected in January. 

 

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The US dollar is facing its steepest weekly decline in nearly three months, with a 1% fall ahead of today's key U.S. jobs report. Unless the data is exceptionally strong, it is unlikely to alter expectations for upcoming Fed rate cuts, as Jerome Powell has signaled a willingness to reduce rates if inflation keeps cooling despite low unemployment. Economists forecast a more moderate 200,000 nonfarm payroll gain in February after January's spike, which analysts attribute to seasonal factors. The dollar's recent weakness reflects easing expectations, boosting currencies like the Australian dollar and euro to multi-month highs against the greenback. US stocks also recovered on Thursday, and the S&P 500 hit a fresh record high. Meanwhile, Japan appears poised for tighter monetary policy. Officials have struck a hawkish tone, citing progress toward the 2% inflation target ahead of the March policy meeting. Substantial private sector wage hikes also support a potential rate increase, driving a recent rally in the yen and Japanese banking stocks.

 

[MongiIG]

The Asian session saw a divergence between rallying Chinese markets, which continue their recovery from the lows of the year so far, and the rest of the region which came under fresh selling pressure. The Nikkei 225 in particular dropped sharply as the yen strengthened following news that Japan's economy did not contract in Q4, following GDP revisions that indicated growth of 0.1% instead of the previous 0.1% contraction. This bolsters the case for the Bank of Japan to shift rates at its meeting next week, with a 53% chance of a move priced in. Today sees a quiet start to the week, but tomorrow's US CPI reading will be the main event to watch. Friday saw market leader Nvidia suffer a sharp reversal, coming after huge gains since 1 January, and a stronger reading on inflation might yet tip markets into at least a short-term pullback. 

 

[MongiIG]

Asian stocks continued their upward momentum on Tuesday, reaching seven-month highs. Many traders were awaiting key US inflation data due later in the day for further direction. Currency markets were largely subdued in Asian hours, except for the Japanese yen which has firmed over the past week on speculation the Bank of Japan could exit negative rates. However, BOJ Governor Ueda struck a cautious tone, saying the economy showed signs of weakness despite recovering. European bourses were poised for a strong open. The US inflation report is the main macro focus, with expectations for a 0.4% monthly rise in the headline CPI and a 3.1% annual rate. Core inflation was seen rising 0.3% to a 3.7% annual pace. In the UK the unemployment rate rose to 3.9% in January, while wage growth in the three months to January slowed to 5.6%.

 

[MongiIG]

Chinese indices once again surged overnight, as the rebound in sentiment there continued. Japanese stocks fell back as pay negotiations concluded with companies conceding worker demands in full. This suggests the Bank of Japan will be more likely to end its negative-rate regime as early as its meeting next week. US stocks made headway despite a stronger CPI reading, with the S&P 500 making a new record high and Nvidia gaining 7%, as six of the Magnificent 7 recorded gains. A quieter day lies ahead, with just US crude oil inventories on the calendar for the session. 

 

[MongiIG]

The Nikkei 225 continued to lose ground overnight, while Chinese markets made further strong gains, in a change from the prevailing trend earlier in the year. Investors are keenly watching today's US economic data releases, including the producer price index (PPI) and retail sales numbers on Thursday, for fresh clues on the direction of Federal Reserve rate policy. Economists expect a rebound in February retail sales after a surprise drop in January. The PPI data feeds into the Fed's preferred inflation gauge. Strong consumer spending and inflation could reduce pressure on the Fed to cut rates soon. Bond market moves suggest expectations for higher rates to persist, though the dollar has weakened. 

 

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European traders may face a sell-off on Friday as equity markets in Asia declined, with investors adjusting their expectations for fewer and later Federal Reserve rate cuts this year. Declines were steeper in markets like Hong Kong and South Korea, over 1%, compared to a 0.3% drop on Wall Street yesterday. Japan's tech sector was the only declining sector, but its chip giants' heavy weighting led the Nikkei index to a 0.3% loss. With many markets near all-time highs, and having rallied so strongly, there remains the potential for short-term weakness. The focus remains on Fed rate cut timing speculation, with US producer price data overnight following hot consumer inflation, eroding expectations of a June cut. The Fed's dot plot after next week's meeting will be crucial for gauging their cautiousness. Other central banks like the BoE, SNB and especially the BoJ, with a potential stimulus exit, also meet next week. US Empire State manufacturing and the preliminary Michigan confidence survey are released today.

 

[KoketsoIG]

The week started relatively quietly in Asia, though China's industrial output and retail sales data beat forecasts, indicating a potential pickup in global factory growth. However, a 9% yearly drop in Chinese property investment remains a concern. A busy week lies ahead for central banks, with meetings scheduled at the Federal Reserve, Bank of Japan, Bank of England, Swiss National Bank and others. Speculation is high that the Bank of Japan will end its negative interest rate policy after eight years, potentially as soon as this week's meeting on Tuesday. At the Fed meeting on Wednesday, while rates are expected to remain unchanged at 5.25-5.5%, the focus will be on the dot plot projections for rates and inflation. A key question is whether the median dot plot will shift to reflect two 25bps rate cuts this year instead of three. The Bank of England meets on Thursday and is likely to hold rates at 5.25%, with around a 50% chance of a first-rate cut priced in for June. Inflation data will be watched closely ahead of the BoE and SNB meetings. After a weaker finish for US markets on Friday, this week could set the tone for some time, depending on what the world's policymakers have to say. 

 

[KoketsoIG]

In a long-expected move, the Bank of Japan ended its negative interest rate policy after 8 years and abandoned its yield curve control policy of capping long-term rates around zero. The BoJ also said it would stop purchasing risky assets like ETFs and REITs. This marks the end of Japan's era of ultra-loose monetary policy and cheap money. The announcement initially led to volatility in Japanese markets, with shares fluctuating before rising and the yen sliding to 150 per dollar against the US dollar. While the BoJ pledged to maintain some accommodation, traders expect rates to remain at zero for now. The Reserve Bank of Australia left rates unchanged as expected but watered down its tightening bias, weighing on the Australian dollar. The moves come ahead of the US Federal Reserve's decision on Wednesday, where it is expected to hold rates steady. However, investors will scrutinise the Fed's economic projections and estimated rate cuts for 2023. European markets are expected to open lower as caution persists ahead of the Fed meeting. 

[KoketsoIG]

Markets are digesting the Bank of Japan's major monetary policy shift away from negative rates, while awaiting the highly anticipated Federal Reserve policy decision on Wednesday. The Bank of England is expected to keep rates unchanged on Thursday, but markets are pricing in a 50% chance of a 25 bps rate cut in June and 60 bps of cuts for all of 2024, with this morning's UK inflation data showing price growth had slowed to 3.4%, its lowest level in two years. The Fed is expected to hold rates at 5.25-5.5% on Wednesday, with focus on the dot plot projections for rates and inflation. Markets are pricing in the first Fed rate cut potentially in June or July. There is a risk the median Fed dot plot could shift to projecting two 25 bps rate cuts this year instead of three. European Central Bank officials, including Christine Lagarde, will speak later, with some endorsing June as the likely time to start discussing ECB rate cuts.

[MongiIG]

This holiday-shortened week will see the release of the closely watched US core PCE inflation data on Friday, with any higher-than-expected reading potentially dashing hopes for a Fed rate cut in June. Markets are currently pricing in a 75% chance of a June cut and 3-4 rate reductions for the year. Central bank speakers from the Fed, ECB, and BoE will also provide guidance amid expectations of future rate cuts. Meanwhile, the surprise SNB move last week has raised uncertainties, while China's central bank pushed back against a sharp yuan depreciation beyond 7.2 per dollar. Overall, inflation data and central bank rhetoric will drive market movements in a quieter trading week. Sterling watchers will want to keep an eye out for a speech at 2.15pm by noted BoE hawk Catherine Mann, which might push back against the expectations of an imminent rate cut at the BoE.

 

[MongiIG]

Markets are cautious ahead of the US inflation data release, with Asian stocks and the yuan slipping slightly on Tuesday, while the yen held steady around 151 per dollar amid warnings of potential intervention. South Korean stocks lead Asian markets higher, though gains in other indices were limited. US futures point to a higher open after a recovery from Monday's lows for tech stocks. US durable goods orders and consumer confidence populate the calendar, though it looks like Monday's quiet session will continue into today.  

 

[MongiIG]

The Japanese yen has weakened to nearly 152 against the dollar, a level not seen since 1990. This has prompted warnings from Japan's finance minister about taking "decisive steps" to address "disorderly" currency moves, hinting at potential intervention by the central bank as occurred late last year when similar language was used. The yen's recent depreciation may have been triggered by comments from a Bank of Japan board member advocating a slow pace of policy normalization after last week's first rate hike since 2007. With several central bankers making public remarks during the day, including from the Fed, ECB and SNB, the potential for further market-moving comments remains. The Swedish Riksbank is expected to leave rates unchanged but traders hope for clues on prospects for future cuts. Meanwhile, choppy and directionless trading persists in stock markets ahead of the quarter-end, a key U.S. inflation report, and a speech by the Fed chair on Good Friday when many markets are closed for holidays. U.S. equity futures are indicating a potential up day in Europe while Asian markets were mixed.

 

[MongiIG]

Australian shares hit new record highs as weaker-than-expected domestic inflation brought forward rate cut expectations while those in China and Hong Kong also advanced. In Europe and the U.S. stock indices also rallied with the DAX 40 and S&P 500 hitting new record highs despite hawkish comments by Fed member Waller who stated that the central bank is in "no rush" to cut rates. The U.S. dollar appreciated slightly with all eyes now on tomorrow's US PCE data release, the Fed's preferred inflation gauge, and Fed Chair Jerome Powell's speech at 7.30pm on Friday which may provide volatility in thinly traded markets due to the Easter break.