All Quiet on the Western Front 

A quiet start to the week despite a lot of data coming over the hill. China is shut for the Lunar New Year holiday, offering some reprieve for stock markets that have not joined in with the record highs. European stock indices were mixed at the open, with London sliding a bit below 7,600, whilst shares in Paris and Frankfurt rose.   

The S&P 500 rallied 0.57% on Friday to close above 5,000 for the first time, with the Nasdaq and Dow Jones also coming off a run of 5 straight weekly advances. About 80% of SPX companies that have reported so far have beaten expectations.  

Of course, except for a handful of Mega Cap tech stocks, the S&P 500 is in a sideways bear market. Thank goodness then for the AI revolution, the subject of our latest podcast. Tesla hasn’t benefited from AI much but had a better week, up 5%.   

Between Scylla and Charybdis 

Nato pushed back against some rather bizarre remarks from presidential candidate Trump. Here is Paul Donovan of UBS: “Markets to date are largely unmoved. Investors are not yet prepared to price scenarios for the November elections. While defence and trade policy fall under presidential commander in chief powers, fiscal policy will depend on Congress as well as the White House.”  

The US electorate faces the difficult task of choosing between men whose mental acuity is questioned, respectively, by his own Department of Justice and the rest of the Western world. Meanwhile by-elections in the UK could show just how steep a task faces Rishi Sunak.  

Awaiting Cuts 

Markets remain focused on when central banks will start to cut rates. That puts a lot of emphasis on Tuesday’s inflation data from the US. In December the CPI outstripped forecasts at 3.4% vs 3.2% anticipated, whilst the stickiness of core inflation remained evident as this came in at 3.9%, down marginally from 4.0% in November.  

The data is key to the Fed’s decision on when to cut rates – last week’s services PMI prices index pointed to the resilience of inflation and the problems of the ‘Last Mile’; markets have been dialling back expectations for a March cut and it is possible the Fed could wait even longer.  

European Press 

With little of any real interest on the calendar today we’ve been reading up on the European press. The ECB’s Pablo Hernandez de Cos told a Cyprus newspaper that the March inflation and growth projections will be important for determining when to cut...hardly anything new.   

Fellow GC member Fabio Panetta said the time to cut was “fast approaching”. More ECB speakers are on the slate today, including chief economist Lane. There are also some Fed speakers, and we hear from Bank of England head honcho Bailey. Check also the NY Fed inflation expectations report due later.  

Oil Holding 

Geopolitical tensions remain supportive of oil prices, which are holding onto the bulk of last week’s rally, though have pulled back a bit from Friday’s fortnight high with the bids evaporating at the European open as the Saudis said they could alter oil policy at any time – Brent futures tracking around $81.80 through a quiet Asian session quickly dumped to $81.25 at the open to test the 50-hour SMA.