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Weekly Market Preview
Monday, Feb 12, 2024
This week, the focus of the market will be on the release of the US Consumer Price Index (CPI) data for January. Despite this metric is not the Federal Reserve’s preferred tool for tracking US inflation levels, investors will closely scrutinize the direction of this index, especially considering its recent trend halting its decline and exceeding expectations in the last months of the previous year.
Due to elevated inflation levels and the strength seen in the US labor market data, members of the Federal Reserve have ruled out the possibility of initiating interest rate cuts at the upcoming March meeting. They stressed the importance of gathering further evidence to support the “soft landing” scenario before considering adjustments to interest rates towards neutral levels.
Projections indicate a noticeable decline in the CPI data from 3.4% to 2.9%, influenced by reduced car sales and the stabilization of West Texas oil prices below $75 per barrel. It should be noted that any higher-than-expected read will postpone the initiation of interest rate cuts, positively impacting the dollar’s prices and adversely affecting metals and stock indices.
Towards the end of the week, market participants will also await the release of UK inflation data for January. Expectations suggest a continued deviation from the Bank of England’s desired direction, with the YoY core consumer price index potentially rising from 5.1% in December to 5.2% in January, while the headline index is expected to increase from 4.0% to 4.1%. Therefore, it is highly probable that the Bank of England will refrain from cutting interest rates in the first half of the year, in contrast to the expectations for the Fed and the ECB. This could support the prices of the pound sterling against the US dollar and the euro.
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