Ahead of the game: 19 February 2024

After a mid-week wobble following a hotter-than-expected CPI print, the S&P 500 and the Dow Jones rebounded to where they started the week. The softest retail sales report in ten months aided the rebound, reinforcing expectations that the Fed will cut rates in 2024.

In Australia, it was a similar story. After a mid-week wobble, the ASX 200 rebounded, helped by another batch of stronger-than-expected earnings reports, and a soft jobs report, increasing the chance of RBA rate cuts.

• In the US, annual headline inflation in January fell to 3.1% YoY from 3.4%, but higher than the 2.9% expected
• Core inflation in the US held steady in January at 3.9% YoY, above expectations of 3.7% YoY
• US retail sales fell in January by the most in ten months (-0.8% MoM vs -0.2% expected), accompanied by downward revisions for November and December
• The UK economy entered recession after GDP for Q4 fell by -0.3%
• Inflation in the UK in January was unchanged at 4% YoY, below expectations for a rise to 4.2% YoY
• The Japanese economy fell into recession after Japanese Q4 GDP unexpectedly shrank by -0.1%
• The Australian economy added 0.5k jobs in January vs. the 25k gain expected. The unemployment rate surged to 4.1%, the highest since January 2022
• Crude Oil gained 1% for the week to $77.60, supported by geopolitical tensions, this is despite the IEA reporting global oil demand is weakening
• Gold lost 1% to trade at $2004 this week, spooked by a hotter-than-expected US inflation report
• Wall Street's gauge of fear, the Volatility (VIX) index, surged to 17.9 after the hot US CPI report, before easing back to 14.00 as equities rebounded.

• AU: RBA Meeting Minutes (Tuesday, 20 February at 11.30am AEDT)
• AU: Judo Bank Flash Manufacturing and Services PMI (Thursday, 22nd February at 9am AEDT)

• CN: Loan Prime Rate (Tuesday, 21 February at 12.15pm AEDT)

• US: Presidents Day Holiday (Monday, 19 February AEDT)
• US: FOMC Meeting Minutes (Thursday, 22 February at 6am AEDT)
• US: S&P Global Flash PMIs (Friday, 23 February at 1.45am AEDT)
• US: Existing Home Sales (Friday, 23 February 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)

• AU

RBA Meeting Minutes

Date: Tuesday, 22 February at 11:30am AEDT

The minutes from the Reserve Bank of Australia's (RBA) February meeting are set for release on Tuesday, 22 February 22 at 11:30am AEDT.

In its February Board Meeting, the RBA maintained the official cash rate at 4.35%, aligning with expectations. The Bank observed that elevated interest rates are effectively moderating inflation and fostering a balanced supply-demand equilibrium.

"Higher interest rates are working to establish a more sustainable balance between aggregate demand and supply in the economy."

The RBA highlighted its data-driven approach, maintaining a slight tightening bias.

"The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks, and a further increase in interest rates cannot be ruled out."

Analysts will meticulously analyse the minutes for insights into the RBA Board's deliberations in February, indicators for future policy adjustments based on its tightening stance for 2024, and any indications towards a shift to a more neutral policy outlook.

RBA cash rate

• US

FOMC Meeting Minutes

Date: Thursday, 22 February at 6am AEDT

The minutes from the Federal Open Market Committee's (FOMC) January meeting are set to be released on Thursday, 22 February at 6am AEDT.

In its January session, the Federal Reserve kept the Fed Funds target rate steady at 5.25%-5.50% for the fourth consecutive meeting. The Fed updated its policy stance, indicating rate cuts are on the horizon, though not immediate.

"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."

Analysts will thoroughly examine the minutes for insights into the Fed's balance sheet strategies, potential timing for rate reductions, its perspective on recent US economic data exceeding expectations, and perceived risks to the global economy.

Fed funds rate chart

• EA

HCOB Flash PMIs

Date: Thursday, 22 February at 8.00pm AEDT

Economic conditions in the Eurozone have remained in contraction for eight consecutive months, yet recent data signals a slight improvement. January's PMI figures reveal a less severe contraction in manufacturing at 46.6, with services stabilising around the 47-48 mark, marking a notable moderation since April 2022.

This upward trend is expected to persist into January, with manufacturing PMI projected to rise to 47.0 from 46.6, and services PMI anticipated to show a smaller contraction at 48.7, up from 48.4. The ongoing subdued economic performance could facilitate the disinflation process, potentially fuelling optimism for reducing inflation back to the European Central Bank (ECB)'s 2% target and supporting the prospect of rate cuts, possibly by June.

Eurozone's HCOB flash manufacturing and services PMI

• US

S&P Global Flash PMI’s

Date: Friday, 23 February at 1.45am AEDT

Last month, the US PMI figures from S&P Global indicated a notable upswing in economic activities. The manufacturing sector achieved its highest reading since September 2022, reaching 50.7. Similarly, the services sector continued its growth momentum, marking its fourth consecutive month of increase at 52.5. Consequently, the US composite PMI ascended to a six-month peak of 52.0.

Analysis of the sub-components over recent months suggests moderate economic growth and diminishing cost pressures, fostering optimism for a potential soft landing and the prospect of upcoming rate cuts, with market expectations leaning towards the June meeting. February's projections hint at a continuation of these trends, with manufacturing PMI anticipated to slightly decrease to 50.1 from 50.7, and services sector PMI expected to adjust to 52.0 from 52.5.

US S&P Global manufacturing and services PMI

US Q4 earnings season

The US Q4 earnings season progresses this week, featuring financial disclosures from leading companies such as Walmart, Home Depot, Nvidia, Berkshire Hathaway, and Warner Bros.

Earnings dates chart