US and European futures are trading higher today as investors continue to celebrate the US inflation data which came out last week. The University of Michigan Consumer Sentiment data also echoed the same message that we heard in the US inflation number. Basically, the one-year inflation outlook declined to 4% as per the University of Michigan Consumer Sentiment survey. In addition, it was the third consecutive monthly decline and the data printed the lowest reading going back to April 2021.
So the main reason that there is so much optimism among investors and traders is that firstly they are anticipating a very mild recession, and this is also what most Wall Street banks are predicting for the US economy. In addition to this, now the fact that the inflation reading has dropped to the six-handle, many traders and investors believe that it is highly likely that the Fed is going to take its foot off the gas pedal. This means that the next interest rate hike in the US will likely be only 25 basis points as opposed to 50 basis points. All of this has made traders more confident in backing riskier assets. Hence, the equity market is the favorite place among many traders to put their money in.
In terms of the week ahead, the BOE governor will speak today. The focus will be on the bank’s monetary policy stance and how much the BOE is going to increase the interest rates this year. Tomorrow, we have the Chinese GDP y/y data, which is pretty much going to set the trading tone not only in Asia but also in the rest of the world. China is the second biggest economy in the world. The US Empire State Manufacturing data will become the focus among traders on Wednesday. The UK will announce its inflation reading on Wednesday as well. Finally, it will be the US retail sales data that will matter the most, and it will also be coming out on Wednesday.
Earnings season will continue to go in full swing, with more US banks announcing their earnings this week.
Over in Asia, the majority of markets in the Asia-Pacific region advanced higher as investor mood in the area was bolstered by predictions of a reduction in inflation in the United States. The Shenzhen Component increased by 2.25 percent on the Chinese mainland, leading to increases throughout the whole area. The Shanghai Composite Index increased by 1.44 percent despite continued falls in property values throughout the country in December. Hong Kong’s Hang Seng index was up 0.74%.
We also saw more economic data from China. On a monthly basis, home prices dropped by 0.25% in December, which was the same rate of reduction that was witnessed in November. The price of an existing house fell by 0.48% in comparison to the same time last year, which is a somewhat quicker rate of reduction than November’s 0.44% loss.
On the covid front, as the country has dismantled its zero covid policy, China recorded an increase of nearly 60K covid fatalities over the weekend.
The crypto market is certainly the big story of the weekend. The Bitcoin price seems to be staging a strong comeback. Today, Bitcoin prices moved above an important resistance level of 20K, but traders need to be more mindful with respect to their enthusiasm. We are not out of the woods and nor can we say that Bitcoin has fully survived another winter. That’s because in order for us to say that yes, bitcoin’s winter season is over, the price needs to move above the 30K price mark. That is really a long shot for the time being.
Gold prices continue to remain interesting as the dollar index continues to weaken against the precious metal. The fact that a number of fed officials have said that it may not be a bad idea to slow down the pace of interest rate hikes speaks volumes in terms of the gold price. Trades believe that gold’s price is going to really explode to the upside. However, things are a little different. The fact is that the Fed is still going to increase the interest rate and this doesn’t mean that someone is going to pull the rug out from under the dollar index. The dollar index may suffer a small correction, but it will likely continue to hold on to its strength. That keeps the lid on the gold prices.