In the latest developments on the global financial stage, U.S. tech stocks kickstarted the week on a positive note with the Nasdaq composite surging by 2.2%. Meanwhile, Tokyo’s Consumer Price Index (CPI) for December met expectations, showing a slight slowdown in year-on-year figures, acting as a precursor to the national CPI release scheduled for the upcoming week. The Bank of Japan (BoJ) remains focused on the missing element of robust wage growth, anticipating further clarity in the spring before considering a policy rate hike and potential adjustments to the yield curve.
Yesterday witnessed a decline in oil prices, attributed to a price cut by Saudi Arabia’s Aramco. Brent, ending the session at approximately $76 per barrel, saw a drop of over 3%, leading to a weakened Norwegian krone due to the broader underperformance of the energy sector.
Swiss December Consumer Price Index surprised on the upside, reaching 1.7% year-on-year, driven by higher prices in electricity, gas, and housing rentals. This contributed to a marginal dip in the EUR/CHFexchange rate.
Federal Reserve officials Bostic and Bowman, in their recent remarks, expressed optimism about cooling inflation in 2024. However, Bowman emphasized a cautious approach to rate cuts. Bostic projected the first cut in Q3 and a total of two cuts in 2024, contrasting market expectations of up to 132 basis points in cuts for the year. Consumer inflation expectations, as per the NY Fed‘s December survey, declined, with 1-year expectations at 3.0% and 3-year expectations at 2.6%.
Equity markets rebounded on Monday, particularly in the U.S., where the S&P 500 rose by 1.4% and the Nasdaq by 2.2%. European markets experienced a modest uptick of 0.4%, with the Russell 2000 leading the charge with a 2% gain. The resurgence in small caps was largely attributed to position adjustments following the previous week’s sell-off. Factors contributing to this rebound included lower yields, positive inflation news, and declining oil prices. Growth-oriented sectors, including technology, consumer discretionary, and communication, outperformed, while clear-cut cyclicals like banks, materials, and industrials lagged behind. Asian markets showed mostly positive trends, but U.S. futures dipped back into negative territory.
In the fixed-income arena, global bond yields experienced a modest decline in anticipation of Thursday’s release of U.S. inflation data. Attention in the European fixed-income market remained focused on primary market activity, with Italy and Belgium entering the market.
Foreign exchange markets observed a relatively calm start to the week, with the Norwegian krone emerging as the weakest performer in the G10 space. The EUR/NOK pair rose to the mid 11.30s due to the general underperformance of the energy complex, coupled with a decline in oil prices. Meanwhile, the EUR/USD held steady around 1.0950, and the EUR/GBP dipped just below the 0.86 threshold.