We have seen a tentative performance from global equity markets so far this week, perhaps in anticipation of what the Core PCE Price Index data may unveil about the trajectory of inflation. The Core PCE Price Index, due for release Friday is expected to show a month-on-month jump in prices in January from 0.2% to 0.4%. It is no secret that the Fed (US Federal Reserve) pays particularly close attention to this inflation gauge, and as such, any move north in prices would add weight to the argument that it’s still too soon to commence the rate cutting cycle.
Ahead of the Core PCE Price Index, investors will also be waiting for the latest US GDP figures (due for release on Wednesday US time).So, between the Core PCE Price Index figures and the GDP data, there is enough on the agenda in the next few days to potentially shape and perhaps shift the interest rate outlook.
Oil made a move higher overnight, with the WTI contract adding 1.6% to $78.52 per barrel. Some of the move higher in crude was based on risk premium being added to the price given the ongoing Israel-Hamas conflict, while an expectation that OPEC+ will extend production cuts beyond Q1 also provided some upward impetus to the price. Oil has gained 11.5% so far in 2024,which will be keeping central bankers on their toes given the potential inflation ramifications of oil having an extended stay at elevated levels.
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The yen edged higher against the USD after Japan’s core CPI came in slightly higher than expectations, however the DXY (Dollar Index)largely held firm around the 103.80 level courtesy of stability in treasury yields. The US 10-year treasury yield remains hovering around the 4.3% level with scope to move higher should Friday’s Core PCE Price Index figure come in on the hotter side of the ledger.
Persistent buying flows for the USD are effectively limiting the upside moves in the gold price. The yellow metal was seen trading around the $2030 level during Asian trading hours on Wednesday, above support at $2024and below resistance at $2039. For the time being, gold looks confined to a range although the precious metal looks well placed to benefit from any uptick in safe haven buying. Longer term, if gold can maintain its stay above the $2klevel, the asset could be in prime position to benefit from an eventual shift of the Fed to an easing policy bias.
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Looking ahead for the rest of the week, aside from the US data we also have China’s Manufacturing and Non-Manufacturing PMI data due for release on Friday. The Manufacturing figures are expected to come in below the key 50 level (a reading below 50 indicates a contraction), while Non-Manufacturing data is expected to show a slightly more positive result of50.9, which would be marginally higher than the 50.7 prior reading. While Chinese authorities have taken steps in recent weeks to step-up the stimulus efforts(such as by cutting the RRR and 5-year LPR rates), foreign investors remain under weight on Chinese assets, and FDI (Foreign Direct Investment) into China slipped 11% in January, illustrating that investors still require more convincing that China has arrested the economic slide.
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