Market Recap – Stocks surge as hopes of rate cuts recede; USD, yields higher

Economic Indicators & Central Banks:

Treasury yields elevated and US government bonds remained in a selloff after Fed Chair Powell pointed to fewer interest rate cuts this year than markets had been projecting.
Strong ISM services index added to the selloff for Treasuries, as did the concession building ahead of this week’s $121 bln Treasuries auction.
RBA left its cash rate unchanged at 4.35% – 12-year high. Surprisingly the statement indicated that “a further increase in interest rates cannot be ruled out,” hence leaving a hawkish bias in place. – possibly this is more prudence and a cautious move in order to keep rate cut expectations from building. Forecasts show inflation will not be coming into the 2% to 3% target range until 2025, hence the hawkish slant, and will not hit the midpoint until 2026.
BOE’s Huw Pill said that he did not need to see underlying inflation actually hit the 2% target to begin lowering rates.
UK retail sales slowed in January.
An unexpected jump in German manufacturing orders at the start of the European session reduced the pressure on the ECB to cut rates. German manufacturing orders unexpectedly jumped 8.9% y/y. This was the strongest bounce since June 2020 – glimmers of hope but overall demand subdued! 

Market Trends:

Chinese stocks rose after the announcement that China’s securities regulator will meet President Xi Jinping.
Equities declined in Japan, Australia and South Korea. Topix fell 0.8% in the early trade ahead of earnings releases from Toyota Motor and Mitsubishi Corporation. JPN225 (Nikkei) fell 0.5%.
US and European futures contracts showed modest gains this morning, extending the positive lead in Asia.
UBS Group AG said it will resume share buybacks this year, vowing to hand as much as $1 billion to shareholders in the second half.

Financial Markets Performance:

The USDIndex rallied on the less dovish Fed outlook, rising to test 104.60 before dipping back to 104.15 today.
The AUDUSD rallied to 0.6520 as Aussie bond yields jumped with the benchmark rising over 7 bps to 4.166.
USOIL recovered modestly from its better than -7% plunge last week, rising to $73.28 per barrel before drifting down to $72.98.
Gold fell to an overnight nadir of $2014.95 per ounce thanks in part to the rise in bond yields, but inched up to finish at $2026.30, the weakest since January 26.

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Andria Pichidi

Market Analyst

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