All-time Highs, Fed's Stance, and Key Economic Updates 📉🗓️

💪 Power up your trading with our insights; a deep-dive into the most popular markets, backed by some of the lowest fixed spreads in the industry 📈 Check our TN Trader Platform here

*Figures correct as of February 12, 2024

Record highs 📈

At the end of last week, several US and European stock indices hit fresh record highs. These included the Dow Jones Industrial Average, the S&P 500, the NASDAQ 100, the Euro Stox 50, German DAX and French CAC. On Friday, the S&P 500 broke above 5,000 for the first time, marking yet another significant milestone, making it a 22% rally in a little over three months, given the index had fallen to within a few points of 4,100 at the end of October.

The question now is whether the break above 5,000 encourages further buying, or if it turns out to be the signal for some profit-taking? Given the negativity that existed in October last year, there won’t be many traders who caught the whole wave.

Meanwhile, the Dow and NASDAQ 100 are getting tantalisingly close to their own milestone levels of 39,000 and 18,000 respectively. The only significant index which refuses to join in the fun is the Russell 2000, which is an index of US ‘small cap’ companies which, unlike the big three, are far more domestically focused.

The Russell is still around 20% below its all-time high from November 2021- the failure of this broad-based index to come to the party could be an opportunity or a red flag. On one hand, it could play catch-up to the corporate titans, or on the other, it could be signalling that all is not as good as it seems with the US economy. It’s a difficult call.

Check out the US 2000.

No March rate cut 👈

As far as sentiment is concerned, investors have shrugged off any disappointment that they may have had after the Federal Reserve made it abundantly clear that they were not ready to cut rates yet.

Fed Chair Jerome Powell has effectively ruled out a cut in March, saying the central bank needs to see more evidence that inflation is on a sustainable path back to the 2% target.

Instead, investors can take solace knowing that the current evidence suggests that inflation is trending down, that US interest rates have peaked, that the unemployment rate is still near historical lows, the US economy is robust and that corporations are reporting solid news on earnings and revenues while being upbeat on the outlook for the rest of the year.

Given all this, what could possibly go wrong?

It might be best not to think too much about problems in China, US commercial real estate and horrifyingly high debt levels around the globe.

Check out the US Tech 100.

Looking ahead

Key inflation updates 🛎️

The recent statement from the Federal Reserve monetary policy meeting, along with comments from Fed Chair Jerome Powell, have made it clear what the US central bank is looking for- it needs to see further evidence of inflation heading back sustainably towards its 2% target.

However, that doesn’t mean that the Fed will wait until inflation falls to 2% before cutting, but it is wary of inflation stalling and getting stuck above its target rate.

The Fed’s preferred inflation measure is Core Personal Consumption Expenditures (PCE). This number excludes food and energy prices which can be volatile.

Core PCE also has a heavy weighting towards housing costs, but as far as investors are concerned, it has been the movement in the Consumer Price Index (CPI) which has grabbed attention over the past few years.

Headline CPI on the other hand, (which includes food and energy) peaked back in July 2022 at +9.1%, falling to +3.0% twelve months later. From there however, it turned sharply higher, coming in at +3.7% two months later before dropping back to +3.4% in December.

Investors will be hoping that there’s a significant decline this week, and that it may drop back below 3.0% along with Core PCE. If so, it may give market sentiment an additional boost, with a possible drop in bond yields.

Check out the Dollar Index.

Crude oil – back above resistance 🚀

Oil prices rallied last week: in early trade on Friday, front-month WTI was up over 6.5% from its low on Monday, while Brent was up 4%. Both WTI and Brent were back above resistance at $75 and $80 respectively.

For the most part, it was a bit of a stealth rally with small, steady, incremental gains each day which largely slipped under the radar. Whether they will build on these gains or pull back as they did at the end of January, remains to be seen.

Last week, Israel rejected Hamas’s latest ceasefire deal and began an offensive on the southern border city of Rafah. Overall, there’s been no change in the fundamental dynamics, but discussions over a proposed ceasefire between Israel and Hamas are ongoing, and Iranian-backed Houthis continue to aim missiles and drones at shipping in the Red Sea.

There’s no end in sight to the war between Ukraine and Russia, and it's developments there which currently have the greatest potential to move oil prices.

For now, the supply of crude oil remains plentiful, while the 2024 demand outlook remains uncertain.

Last week the US Energy Information Administration (EIA) released its short-term energy outlook. The EIA forecasts that US production will be steady at 13.3 million barrels per day (bpd) for the next twelve months. This helped to steady prices as it indicates no increase from the record output of last December.

Occidental’s CEO Vicki Hollub predicts a supply shortage in crude oil by the end of 2025 as countries are failing to replenish reserves fast enough. Forecasts also suggest that demand will outstrip supply by a large margin, but it’s worth considering that OPEC+ could reverse current supply cuts and even raise production in response.

Check out crude oil.

The economic calendar 🗓️

This week Chinese banks will be closed in observance of the country’s Spring Festival.

📌 Tuesday morning sees the release of UK employment data, with the Claimant Count Change, Average Earnings Index and Unemployment Rate. There’s also Swiss CPI and the German and Eurozone ZEW Economic Surveys.

We’ve seen a pick-up in these two data sets recently with both pushing back into positive territory, but they remain a long way below their most recent peaks from May 2021. The day’s key economic release is US CPI, the most widely accepted measure of inflation. Investors will be hoping that there’s a significant decline this week.

📌 Investors will be hoping for something similar on Wednesday morning when we see the latest inflation updates for the UK. Headline CPI last came in at +4.0%, while Core is proving stickier at +5.1%. Later on, there’s an update on US Crude Oil Inventories from the EIA.

📌 Thursday starts with the first look at UK GDP for the fourth quarter of last year. This is forecast to come in at -0.10% and if so, and should Q3’s number be revised down, then the UK will be in a technical recession. That would be unwelcomed news for the UK government and Chancellor Jeremy Hunt as he prepares for what’s likely to be his last Budget ahead of the General Election.

📌 On Thursday, there’s US Retail Sales, the Empire State Manufacturing Index, the Philly Fed Manufacturing Index, weekly Unemployment Claims and Industrial Production.

📌 Friday finishes with UK Retail Sales, while from the US we have PPI (wholesale inflation), Building Permits, Consumer Sentiment and Inflation Expectations.

This week’s key Q4 earnings 👇

📍 Monday:

Arista Networks, Cadence Design, Vodafone, Avis Budget Group,

📍 Tuesday:

Coca-Cola, Shopify, Airbnb, Zoetis, Moody’s, Marriott International, AIG, Akami Tech, MGM Resorts, Molson Coors, Zillow, Hasbro.

📍 Wednesday:

Cisco, Sony, CME Group, Occidental Petroleum, Kraft Heinz, Barrick Gold, Kinross Gold.

📍 Thursday:

Applied Materials, Deere & Co, DoorDash, CBRE Group, DraftKings, Hyatt Hotels, Roku, Crocs.

📍 Friday:

Eni, Copart, Baidu, NatWest.

*All views and opinions are analysis not advice. You should seek independent financial advice where required.

*CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Past performance is not indicative of future results.