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Weekly Market Preview
Friday, Mar 8, 2024
The market’s primary focus last week was on the testimony of the Federal Reserve Chairman before the US Congress. The chairman indicated that interest rates might be reduced at some point in the current year. However, he emphasised that members of the Federal Reserve would not hastily initiate interest rate cuts, considering robust data from both the labour market and inflation levels. Members expressed a preference for a cautious approach, intending to gather more data indicating a decline in inflation levels and their stabilization near the target of 2%.
Concurrently, the likelihood of a scenario reminiscent of the 2020 US election has increased. Trump secured the Republican Party nomination, and Biden clinched the Democratic Party nomination in numerous state primary elections. President Biden, during his State of the Union address before the US Congress, directed criticism towards former President Trump. Opinion polls, however, show a preference for Trump, with American voters expressing doubts about President Biden’s fitness to govern America for the next four years.
This week’s agenda is relatively light compared to previous weeks but includes significant releases such as the US Consumer Price Index report (inflation levels) and US retail sales data for February. The YoY CPI headline decreased from 3.4% in December to 3.1% in January. The index reading is anticipated to stabilize at 3.1% in February, while the annual core index may decline from 3.9% in January to 3.7% in February. Conversely, US retail sales data are expected to increase from (-0.8%) in January to 0.6% in February, and the core retail sales may climb from (-0.6%) in January to 0.4% in February.
Therefore, any higher-than-expected data may not encourage the Federal Reserve members to initiate early interest rate cuts in the second quarter. Instead, it might lead them to consider postponing the reduction until the third quarter of the current year. This potential scenario if happens could support US dollar prices and US bond yields, while it may hinder stock indices from reaching new historic highs.
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