Weaker dollar, expensive bitcoin, stock markets at highs

Friday's macro data from the US disappointed. The second February survey by the University of Michigan showed a more pessimistic mood among American consumers, and the ISM index fell instead of rising, as the forecasts of the surveyed analysts indicated. The impact on the US dollar was negative but not catastrophic.

The EUR/USD rate rose to 1,0855. Wall Street reacted to the data with increases stock market indices once again set new historical records. Investors strengthened their hopes that the Federal Reserve will lower the cost of money in June. Yields of American bonds decreased in reaction to the publications. Bitcoin does not slow down and starts this week with further increases, reaching the level of USD 65.

Signs of recovery in foreign trade

The University of Michigan report showed a decline for the first time in three months. The data are not terrible and do not reverse the upward trend. The weaker result could be the result of rising fuel prices, which may be aggravated by higher inflation expectations. Over the course of the year, they increased to 3%. which means that they increased from 2,9%. Long-term expectations stabilize at 2,9%.

As for the February survey on the economic situation in American industry, the main indicator dropped to 47,8 points. with 49,1 points previously. The market consensus indicated an increase to 49,5 points. This is the 16th month in a row that the index has been below the neutral level. It was last above it in October 2022. The worse result than in January was due to, among others, from reducing employment, but also production and inventories. The positive thing is that foreign trade shows signs of recovery. The fact that the situation in the US industry is not that bad is also proven by the PMI index, which was at 52,2 points. which exceeded the forecasts and the previous result.

The market has slightly changed its valuation and now it is again around 65%. a chance for the Fed to ease monetary conditions already in June. Currently, his expectations largely coincide with the results of the dot chart, which published in December indicated three real movements this year, each by 25 bp.

Market attention focused on the NFP report

This week promises to be full of market events. The ECB will decide on the rates. Nobody doubts that the bank will leave the rates unchanged. Attention will shift to whether the institution will indicate in any way a possible date for the start of the monetary easing cycle and whether the March communication will be slightly more specific than the one we received in February. The Monetary Policy Council will also decide on the rates. Here, too, everything indicates that we will achieve stabilization of the interest rate level. The market will rather want to know what shape the anti-inflation shields proposed by the government will take in the coming months (VAT on food, energy prices in H2 2024).

The market's attention will shift from hard releases to Friday's release NFP report, but first the JOLTS report, ADP and weekly data on the number of benefit applications will be assessed. This means that this week will bring us the latest picture of the American labor market. If the market receives signals of greater cooling, the chance of a June cut will increase, which is not yet certain at this point. Let's not forget about the ISM report, which will show the current state of the services sector in the US.

Source: Łukasz Zembik, OANDA TMS Brokers