It's going to be a quiet week on the financial markets

The stock market on Wall Street is closed today, but China is returning to normal after the Lunar New Year holiday. Local reports suggest that travel and spending have been strong during this period, which could suggest that Chinese consumption is poised to accelerate again. However, stock indices behaved in a mixed manner during today's session. The CSI 300 benchmark gained only 0,6 percent today. and the Hang Seng index lost 1,13%.

Friday's report on producer inflation in the US surprised the markets with high values. The January reading showed an increase of 0,3%. m/m (in December -0,1%) and 0,9%. y/y (forecast 0,6%). Excluding food and energy, core PPI rose 0,5%. m/m (consensus 0,1%) compared to -0,1% in December. This translated into 2%. y/y (consensus 1,6%) vs. 1,7%. previously. According to the University of Michigan report, consumer sentiment reached 79,6 points. which means an increase from 79 points. in December but at the same time a lower value than expected (80 points). Short-term inflation expectations were higher, reaching 3%. and long-term ones remained at 2,9%. When it comes to inflation, markets will now look to the Fed's preferred measure, the core deflator PCE, which will be released together with the entire report on Americans' spending on February 29.

As a result of the data at 14:30 p.m. (PPI), the dollar strengthened in the first reaction, but lost quite quickly when the data from 16:00 p.m. (Michigan) came to light. Currently, what will be important for the dollar is that inflation remains high and other data describing the state of the economy are at a solid level. Then the belief in the validity of the Fed's attitude will be strengthened, which can be briefly called "high for longer".

Last Friday, Fed Funds interest rate futures were trading at just 12%. chances of cutting rates by 25 bp in March, 39 percent by May and just over 62 percent. until June. Throughout 2024, the market assumes a reduction in the cost of money in the US by 90 bp, compared to 125 bp at the beginning of February and 158 bp at the end of 2023. It is visible how much the optimistic scenario had to be modified as a result of the macro data known at that time.

Individual Fed representatives spoke on Friday. The Richmond Fed's Barkin said the latest inflation data underscore why policymakers want to see more data before cutting interest rates. Atlanta's Bostic said his outlook is for interest rates to begin to return "to a more neutral position during the summer". He reiterated that he expects two interest rate cuts in 2024, but if inflation falls faster than forecast, there could be three cuts. Mary Daly pointed out that three 25-bp rate cuts this year are a "reasonable baseline."

EUR / USD exchange rate on Friday found itself at the point where the downward trend line runs, connecting the maximums from the end of December 2023 and the beginning of February this year. The arrangement of candles on the chart suggests a rebound. The chart showing 4-hour candles shows an inverted head and shoulders formation. The declines of the main currency pair, which lasted for over 1,5 months, set minimums near the horizontal support (1,0720) and in the place where one of the key internal Fibonacci retracements falls (61,8%).

Source: Łukasz Zembik, OANDA TMS Brokers