Ahead of the game: 26 February 2024

This week, the S&P 500 and the Dow Jones soared to unprecedented peaks, fuelled by Nvidia's dazzling earnings showcase. The tech giant's shares blasted off, surging over 16% to a stellar $785.38 overnight. It's rare for a single entity to catalyse such a monumental shift in market mood, yet Nvidia's performance did just that, electrifying stock markets from Germany to France and Japan with newfound vigour.

Meanwhile, the ASX 200 found itself in a starkly different narrative. Amidst its heavy roster of steadfast yet somewhat staid financial and resource stocks, it lingered in contemplation. The week was spent sifting through earnings reports, navigating a period of consolidation that kept it shy of recent zeniths. This juxtaposition highlighted the evolving landscape of investment, where the dynamism of AI and tech stocks is increasingly setting the pace against the traditional bastions of the market.

• US FOMC Meeting minutes: Fed's rate cut pause confirmed
• PBOC's market surprise: 5 Year Loan Prime Rate cut by 25bp to 3.95%
• German Flash Manufacturing PMI hits a 4-month low at 42.3, missing forecasts
• US Composite Flash PMI dips to 51.4 in February, a slight retreat from 52
• EA Composite Flash PMI climbs to 48.9 in February, up from 47.9
• Reuters Tankan Index in Japan drops to -1 in February, optimism wanes
• RBA deliberates in February: rate hike vs. holding cash rate at 4.35%
• Gold rises 0.63% to $2025, buoyed by a weaker US dollar
• Crude Oil steady at $78.30 amidst geopolitical tensions and softening demand
• Volatility index (VIX) nudges up to 14.53, even as global equities advance.

• AU: RBA Meeting Minutes (Tuesday, February 20th at 11:30am AEDT)
• AU: Judo Bank Flash Manufacturing and Services PMI (Thursday, February 22nd at 9am AEDT)

• CH: Loan Prime Rate (Tuesday, February 21st at 12:15pm AEDT)

• US: Presidents Day Holiday (Monday, February 19th AEDT)
• US: FOMC Meeting Minutes (Thursday, February 22nd at 6am AEDT)
• US: S&P Global Flash PMIs (Friday, February 23rd at 1:45am AEDT)
• US: Existing Home Sales (Friday, February 23rd at 2am AEDT

• GE: HCOB Flash PMIs (Thursday, February 22nd at 7:30pm AEDT)
• EA: HCOB Flash PMIs (Thursday, February 22nd at 8:00pm AEDT)
• UK: HCOB Flash PMIs (Thursday, February 22nd at 8:30pm AEDT)
• GE: Ifo Business Climate Survey (Friday, February 23rd at 8:00pm AEDT)

• JP

Japan’s inflation rate

Date: Tuesday, 27 February at 10.30am AEDT

Japan's inflation has decelerated since peaking in January 2023, with both headline and core inflation reaching a 16-month low in December last year. This slowdown may allow the Bank of Japan (BoJ) to continue its wait-and-see approach, supporting their stance that inflation is primarily driven by cost-push factors.

Inflation forecasts for January suggest a decrease to 1.9% from the previous 2.6%, with core inflation (excluding food prices) also expected to reduce to 1.9% from 2.3%. The core-core inflation (excluding volatile food and energy prices) is anticipated to drop to 3.3% from 3.7%.

Despite slipping into recession at the end of last year, Japanese policymakers are vigilant for signs of a positive wage-inflation cycle and a stable 2% inflation rate before considering an exit from ultra-accommodative policies. With the shunto wage negotiations season approaching, the market is currently assigning a 60% probability to a rate hike in the April meeting.

Japan's inflation rate % YoY

• AU

Monthly CPI indicator

Date: Wednesday, 28 February at 11.30am AEDT

Recent data has shown a moderation in Australian inflation across key quarterly and monthly indicators:

• Headline inflation increased by 0.6% in the December Quarter (Q4), yielding an annual rate of 4.1% YoY. This is below the anticipated 4.3% and significantly lower than the 5.4% observed in Q3
• The RBA's preferred inflation measure, the trimmed mean, rose by 0.8% QoQ, bringing the annual rate to 4.2% YoY, a notable decrease from 5.2% in Q3
• The Monthly CPI indicator for December showed a 3.4% YoY increase, a slowdown from November's 4.3% and below the expected 3.7%
• Excluding volatile items, the Monthly CPI indicator for December saw a 4.2% rise, down from 4.8% in November.

For January, the monthly CPI indicator is projected to rise to 3.2%, further descending from December 2022's 8.4% peak. This trend suggests that heightened interest rates are effectively curbing inflation and aiding in achieving a more balanced supply-demand equation.

With inflation cooling and the labor market stabilizing, the RBA is expected to relax its tightening bias in the forthcoming months, leading to a 25 basis point rate cut in August followed by another in November.

CPI monthly indicator.

• US

Core PCE

Date: Friday, 1 March at 12.30am AEDT

In December, the Federal Reserve's main way of tracking inflation, known as core PCE prices, which ignores the often changing costs of food and energy, slightly increased by 0.2%. This brought the yearly inflation rate down to 2.9%, its lowest since 2021. Following this, January saw a surprising rise in the Producer Price Index (PPI), a factor that heavily affects core PCE.

As a result, experts predict a 0.3% monthly increase in core PCE for January, the largest in four months. This suggests inflation might decrease unevenly moving forward, highlighting the Federal Reserve's caution against expecting quick rate cuts.

“The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.”

Core PCE price index

• EU

EA inflation

Date: Friday, 1 March at 9.00pm AEDT

In January, Euro Area headline inflation decreased to 2.8% YoY from December's 2.9%, with core inflation dropping to its lowest since March 2022 at 3.3% YoY. It's expected that headline inflation will further reduce to 2.7% YoY this month. Despite the European Central Bank's (ECB) January meeting minutes indicating it's too soon for rate cuts due to a "fragile" disinflationary process, the market anticipates a 25 basis point ECB rate cut in April, reflecting a divergence between ECB caution and market expectations.

EA headline annual inflation

• CN

NBS and Caixin Manufacturing PMI

Date: Friday, 1 March at 12.30pm AEDT

China's PMI figures for January have shown a marginal improvement in business conditions, with the manufacturing sector's contraction slightly easing to 49.2 from December's 49.0, while the services sector improved to 50.7 from 50.4.

Chinese authorities have maintained supportive policies, recently implementing their largest cut on record by reducing the five-year loan prime rate (LPR) by 25 basis points (bps) to 3.95%. However, skepticism persists regarding the effectiveness of previous cuts. Investors remain vigilant for signs of a durable economic recovery, which the forthcoming PMI figures might not yet indicate.

The official February manufacturing PMI is anticipated to stay in contraction at 49.5, showing a minor improvement from 49.2. Simultaneously, the Caixin manufacturing PMI, with a stronger emphasis on smaller, private enterprises, is expected to slightly decline to 50.7 from 50.8, suggesting continued subdued growth conditions and highlighting the need for further intervention by the authorities.

China's NBS manufacturing & non-manufacturing PMI

• US

US Q4 earnings season

The US 4Q earnings season is nearing completion, with 82% of S&P 500 companies having reported by February 21, 2024. Corporate earnings have shown strong momentum, with 79% surpassing expectations, marking a consecutive quarter of positive earnings growth. After Nvidia's impressive earnings, the focus on the "Magnificent Seven" has ended for the quarter.

However, significant reports are anticipated next week from companies including Zoom Video, eBay, Salesforce, Baidu, and NetEase, indicating the earnings season's influence is still in play.