Markets were very quick to swallow and digest the less-than-ideal US inflation statistics released this Tuesday. The data showed that U.S. inflation was not easing as much as expected in January. Remember that data? It was just two days before him, and it was supposed to be important and potentially trend-changing. Interestingly, the market reaction was short-lived. The fact that inflation did not accelerate in other regions, such as the UK, helped solidify the idea that this was definitely just a blip in the disinflationary trend, if not more, says the Chicago Federal Reserve. Mr. Goolsby of the Institutional Board of Governors (FRB) said. He said months of slightly higher inflation data were still consistent with further easing toward the Fed's 2% target. European Central Bank (ECB) officials sounded more poetic, with the message from the world's cheesiest central bank: “Roses are red, violets are blue, we are getting closer to our goals, and we will achieve them too.” posted. So, in this atmosphere of love and hope, investors are getting their heads together, taking a buy-on-the-moment stance, going out aggressively and chasing good trades if they can be called good trades at current levels. It was.
And, according to the latest 13F filings, even The Big Short's Michael Varley (a well-known short seller of stocks, who shorted chip stocks last year and went on a repeat short sale) has no more in his portfolio. I want you to know that there are no short positions. The most famous short trader in history has thrown in the towel. He is currently long health care and tech stocks.
The S&P 500 rebounded nearly 1%, with tech stocks leading the gains. For example, Uber (NYSE:) soared nearly 15% after announcing its first-ever $7 billion share buyback to mark its first annual net profit since going public. His Asian rival Lyft (NASDAQ:) soared more than 60%, but this was a mistake. The company was confused between his 50 bp and his 500 bp. There's more than just one zero in a press release.
Now, back to the serious stuff, the US and yields reversed their post-CPI gains due to market ignorance of the inflation risks that should have delayed the Fed's first rate cut. Field returned. But note that even though the bulls continue to show their face, Fed rate cut expectations are not what they were at the beginning of the year. Investors will continue to focus on retail sales and some manufacturing indicators today, speculating when the Fed will move. Strong retail sales should make the Fed less dovish, but weaker manufacturing should support dovishness. Market prices suggest that three rate cuts will occur at full price and the fourth rate cut will occur at around 70% price. This is fewer than the four rate cuts the ECB had priced in.
Therefore, the euro's weakness against the US dollar remains well supported by fundamentals. However, there is one thing. The ECB's dovish expectations are fueled by weak growth in the eurozone and falling inflation. But because everything from commodities to oil is negotiated in terms of the dollar, a general appreciation of the dollar causes inflation for the rest of the world. Therefore, a hawkish shift from the Fed and a stronger USD could lead to an undesirable U-turn in European inflation, loosening the ECB's dovish grip and undermining a sell-off.
Fortunately, energy prices are not yet much of a threat. In this context, oil prices traded above the 200-DMA before plummeting as oil inventories increased by 8.5 million barrels in the latest EIA data last week. Diving also continues, driven by record production, abundant supply, and weak demand due to warm winters in both Europe and the United States.
Elsewhere, data released this morning in Japan showed the country unexpectedly entered recession in the fourth quarter. The economy contracted by 0.1%, although analysts had expected a 0.3% expansion. Personal consumption declined for the third consecutive quarter. If the latter did not cause a new depreciation of the yen due to the serious threat of direct intervention.
