Positive economic data and US stocks decline: Recent US economic data such as consumer spending, retail sales, and bond traders have forced bond traders to price bets on another rate hike.
Topics
US stocks
US stock
US stock prices fell at the same time as risky assets declined amid a rise in bonds
amid expectations that the Federal Reserve will not rush to cut interest rates at a time when signs of strength in the economy are beginning to appear.
At a time when good economic news is not politically good news, strong retail sales have raised concerns about bold, cautious displays on Wall Street.
With central bank officials adopting a more cautious tone recently on the outlook for monetary easing,
this has proven to be the perfect recipe for investors to delay the Fed’s initial decision,
thus reducing the chances of an interest rate cut in the first quarter.
Tom Isay, founder of The Sevens Report, said we need data consistent with consumer spending that is strong and resilient,
but not so much that the Fed delays interest rate cuts or the rate of cut is lower in 2024.
Federal Reserve
The Federal Reserve Bank indicated in a “Big Book” survey that strong consumer spending
contributed to strengthening and boosting the economy in recent weeks.
Federal Reserve swaps showed that the probability of easing in March could reach 50%, compared to 80% on Friday.
This step reflects a decline in British bonds after data showed a rise in inflation,
which led traders to reduce bets on facilitating the Bank of England’s monetary policy.
While two-year Treasury bond yields reached 4.3%, the price of the dollar rose, and the S&P 500 index’s losing streak continued in 2024.
The Wall Street Fear Index (VIX) reached its highest level since November.
On the other hand, US retail sales rose in December at a rapid pace for 3 months,
concluding the strong holiday season that indicated the consumer’s survival in the new year.
The data also showed an increase in the morale of home-building companies in January at a pace not seen in a year,
as the decline in mortgage rates led to increased customer traffic, sales growth, and expectations of increased demand.
Andrew Hunter of Capital Economics believes that although a further slowdown is approaching,
some believe that we are facing a stronger contraction soon.
For his part, David Russell of Trade Station said: “A recession looks increasingly unlikely.
Although the inflation storm has weathered, consumers still have to spend demand and the dollar.
A soft landing may be starting to take shape before our eyes.”
With consumer confidence gaining momentum, the economic situation has been strong,
the market reaction does not indicate any hope of a rate cut in January, according to Quincy Crosby of LPL Financial.
Davos conference
The financiers participating in the Davos conference, which was held this week, agreed to lower expectations for a reduction in interest rates.
All participants, including Daniel Pinto of JP Morgan, Bill Winters of Standard Chartered, and Howard Lutnick of Cantor Fitzgerald,
expected The process of easing monetary policy will be slower than expected.
Despite this, traders raised the US central bank’s aggressive monetary tightening campaign,
which raised the maximum financing rate to 5.5% this year, from early 2023 to 0.25% in 2022,
but said the total interest rate cut would amount to about 175 points. basis, down from a recent peak near 140 basis points.
Jason Draho of UBS Global Wealth Management warned that the market cycle is unlikely to be smooth.
“Investors discussed the type of soft landing, the stage of the monetary policy cycle, the macro regime,
and a wide dispersion of views, currently opening quickly based on new data,” he said.
“This could lead to a rapid and dramatic market change of prices that will change the consensus view,” he said.
As earnings season continues, investors will have to consider interest rate expectations along with financial results,
according to Jose Torres of Interactive Brokers.
“Strong pricing power and profitability could lead to sustained inflationary pressures,
which will gradually slow down interest rate cuts,” Torres said.
“On the other hand, weak earnings trends could lay the groundwork for easing monetary policy, but at the expense of deteriorating corporate fundamentals.”
Indices Performance
The S&P 500 index fell by 0.6%, the Nasdaq index also fell by 0.6%, and the Morgan Stanley World Composite Index fell by 0.9%.
Cryptocurrencies also fell, as Bitcoin fell by 1.9%, reaching $4,261.01, while Ethereum fell by 2.8%, settling at $2,534.5.
As for gold, its price in instant transactions fell by 1.1%, reaching $2,006.04 per ounce.
Positive economic data and US stocks decline