Fed Speak:
Federal Reserve (Fed) officials Goolsbee and Bostic maintained their stance against the notion of imminent rate cuts, emphasizing positive developments on inflation. Goolsbee cautioned that the “market has gotten ahead of themselves,” while Bostic asserted that there “is not going to be urgency” in easing the current policy stance. Barkin struck a more optimistic note, describing the retreat in inflation as “remarkable.” Despite the differing views, the market anticipates a rate cut in March, with expectations of a gradual pace in 2024.
PBoC:
The People’s Bank of China (PBoC) left the 1 and 5-year Loan Prime Rates (LPR) unchanged, in line with expectations. This decision follows the lack of changes to the Medium-term Lending Facility (MLF) rate. The Loan Prime Rates serve as key reference rates for business loans and mortgages. China’s economic outlook remains mixed, leading to a “muddling through” scenario. GDP growth is projected to reach 4.5% in both 2024 and 2025.
Equities:
Global equities continued their upward trajectory, driven by persisting expectations of rate cuts and favorable market conditions. Despite Fed officials’ attempts to push back against rate cut expectations, investors remain convinced of imminent cuts. Energy and materials sectors performed well, with the Russell 2000 rising almost 2%. Asian markets, including Kospi and Nikkei 225, posted gains of over 1.5%, while US and European futures also trended positively.
Fixed Income:
Market sentiment continues to overlook Federal Reserve officials’ comments about gradual and limited rate cuts. The 10-year US Treasury yield is testing the 4% level, and the US yield curve is flattening from the long end, deviating from the typical pattern seen at the beginning of a rate-cutting cycle.
FX:
In Scandies, NOK/SEK advanced for the fifth consecutive session, aligning with relative yields following Norges Bank’s surprise hike. GBP and AUD outperformed in response to hawkish central bank comments. The USD remained on the back foot after the Fed’s refrained stance on rates, contributing to EUR/USD inching higher and eyeing the 1.10 handle.
Investors are navigating varying central bank tones, with the global market influenced by expectations of rate cuts, differing economic outlooks, and currency dynamics.
