Weekly Recap: US inflation dominates the market

Last week, the financial markets were shaped by significant data releases across several major economies, notably the United States and the eurozone. In the eurozone, data published by the European Statistics Office (Eurostat) on Friday indicated that the region’s annual harmonized consumer price index (HICP) rose by 2.6% in February, a slight dip from January’s 2.8% increase. Market forecasts had anticipated a growth rate of 2.5% for the same period.

Core inflation in the eurozone moderated to 3.1% year-on-year in February, down from January’s 3.3%, surpassing expectations of 2.9%. Throughout the month, the HICP index for the region rose by 0.6% compared to January’s decline of 0.4%.

Meanwhile, in New Zealand, the Reserve Bank of New Zealand kept its interest rate at a record high during its meeting last Wednesday, signaling its intent to maintain current key rates for the foreseeable future.

The decision of the New Zealand Monetary Policy Committee caught markets off guard, as expectations were for a rate hike given prevailing economic conditions. Additionally, there was anticipation that the Reserve Bank of New Zealand might signal a readiness to raise rates in the near future if deemed necessary, but no such indication was provided.

In the United States, inflation followed predicted trends in January, according to a significant indicator used by the Federal Reserve in its interest rate deliberations.

The Personal Consumption Expenditures (PCE) index, excluding food and energy costs, increased by 0.4% for the month and by 2.8% from a year earlier, in line with Dow Jones estimates.

The overall personal spending index, which includes volatile food and energy categories, rose by 0.3% monthly and by 2.4% annually, matching expectations. Personal income unexpectedly rose by 1%, surpassing the projected increase of 0.3%. However, spending decreased by 0.1% against an expected rise of 0.2%.

These developments had a modest impact on the markets, with stock futures trading mixed and US government bond yields experiencing slight increases. Futures markets, where traders speculate on interest rate movements, indicated minimal activity, with the first interest rate cut by the Federal Reserve likely to occur in June.

The dollar index hovered near 103.9 on Thursday, close to a four-week low of 103.82 earlier in the week, as investors assessed various economic indicators for insights into the Federal Reserve’s outlook for the year.

As of the time of writing, the dollar index, which measures the US currency against a basket of six major currencies, had declined slightly to 103.77 points from 103.92 points.

During Wednesday’s trading session, Bitcoin surged above $59,000, reaching levels unseen since November 2021. This propelled its weekly increase to approximately 16%, marking a significant rise of about 39% for the month of February.

At the time of drafting this report, Bitcoin had climbed to $60,158 from its previous position at $57,065. This uptick can be attributed to heightened buying activity by institutional investors, coupled with the growing popularity of Bitcoin exchange-traded funds launched in January, resulting in record trading volumes.

Furthermore, anticipation surrounding the impending Bitcoin miner bounty reduction event in April has contributed to the positive momentum surrounding the cryptocurrency. Historically, such Bitcoin halving events have been linked to market rallies. Additionally, there is increasing speculation regarding the potential approval of Ethereum-linked exchange-traded funds, which could further drive up Ethereum prices.

Looking ahead to next week, investors will closely monitor the release of the January labor report from the US, along with speeches by several Federal Reserve officials, including Chairman Jerome Powell’s monthly reports to Congress. Key US economic indicators such as the ISM Services Index, JOLTS job openings, factory orders, and foreign trade data will be under scrutiny.

On the international front, attention will be on the interest rate decisions of the European Central Bank and the Bank of Canada, as well as inflation rates in Turkey, Switzerland, South Korea, and Mexico. Additionally, GDP growth rates in Australia and South Africa will be closely watched.

Lastly, trade data for major exporting nations including Germany, Brazil, France, Australia, China, and Canada will be monitored, alongside service indicators for China, Spain, Italy, and Brazil.