The Japanese Nikkei 225 Index continues to update multi-year records. Oil prices continue to rise due to the situation in the Middle East

At Friday’s close of the stock market, the Dow Jones Index (US30) decreased by 0.37% (0.07% for the week). The S&P 500 Index (US500) was down 0.48% (0.42% for the week). The NASDAQ Technology Index (US100) closed negative 0.82% (1.28% for the week). Stocks in the US ended Friday’s trading lower amid concerns over strong PPI data, which added to fears that the Fed would not start cutting interest rates sooner than expected. In addition, Friday’s US housing news was weaker than expected after January housing starts and January building permits unexpectedly declined. As a result, the real estate, technology, and consumer staples sectors were the worst performers, while the energy sector remained on the plus side.

Comments from Fed officials on Friday were primarily hawkish for Fed policy and bullish for the dollar. Richmond FRB President Barkin said the betterthanexpected inflation data underscored why policymakers want to see more data before cutting interest rates. Also, Atlanta Fed President Bostic said there is no rush to cut interest rates because the US labor market and economy are still strong, and it may take “some time” before inflation moves steadily toward the Fed’s 2% target.

Goldman Sachs strategists raised their yearend target for the S&P 500 Index to 5,200 from 5,100, indicating a 4% upside potential from current levels. According to GS analysts, the nearly completed Q4 earnings season demonstrated corporations’ ability to maintain profit margins despite slowing inflation.

Equity markets in Europe were mostly up on Friday. Germany’s DAX (DE40) rose by 0.42% (weektodate 0.83%), France’s CAC 40 (FR40) gained 0.32% on Friday (weektodate 1.23%), Spain’s IBEX 35 (ES35) Index declined 0.41% on Friday (weektodate 0.52%), and the UK’s FTSE 100 (UK100) closed positive 1.50% (weektodate 1.84%).

The IBEX 35 Index (ES35) fell by 0.41% to close at 9,886 on Friday, its lowest level in three weeks, losing ground to its regional peers. Frankfurt’s DAX Index (DE40) trimmed early gains but still closed 0.42% higher to close at a record high of 17,117 on Friday, helped by positive earnings results and hopes of an upcoming rate cut by the European Central Bank. The auto sector led the gains, with Porsche and BMW adding over 1% and Mercedes up 0.7%. ECB spokesman Francois Villeroy de Gallhau said there are several good reasons why the ECB should not delay an initial interest rate cut this year after Lagarde acknowledged the previous day that inflation is forecast to return to target levels. However, she needs more evidence before proceeding with a rate cut.

WTI crude oil prices settled at $79.19 a barrel on Friday, hitting their highest level since November and posting gains for the second week in a row. Geopolitical tensions in the Middle East and OPEC+ efforts to limit oil supply supported oil prices. In addition, oil prices rose more than 1% on Thursday following the release of weakerthanexpected US retail sales data, which triggered a decline in the dollar. However, the International Energy Agency (IEA) warned in its monthly report that global oil demand is declining, citing a significant drop in demand in China. The IEA revised its 2024 global oil demand forecast to 1.22 million bpd from a previous estimate of 1.24 million bpd.

Asian markets traded mostly higher last week. Japan’s Nikkei 225 (JP225) jumped in 4.26% for the week and hit a 34year high, China’s FTSE China A50 (CHA50) was not traded last week, Hong Kong’s Hang Seng (HK50) ended the week up 2.20%, and Australia’s ASX 200 (AU200) ended the week positive 0.18%.

China’s tourism revenue during the New Year holiday period ending on Saturday rose by 47.3% yearonyear thanks to a boom in domestic travel. The data may temporarily relieve policymakers as the world’s secondlargest economy faces deflationary risks amid weak consumer demand. On Sunday, the People’s Bank of China (PBoC) kept its oneyear lending rate unchanged at 2.5% amid efforts to prevent increasing pressure on the yuan and assess the impact of recent measures to support the economy. The operation resulted in a net injection of 1 billion yuan into the system, the smallest infusion into the economy since August last year.

Japan shocked analysts last Thursday when data showed gross domestic product unexpectedly contracted for two consecutive quarters, the technical definition of a recession, and lost ground to Germany as the world’s thirdlargest economy. While the GDP headlines were startling, the focus for Bank of Japan policymakers is on whether the sharp wage hikes scheduled for 2024 will be repeated next year, which the central bank says are necessary for Japan to emerge from negative interest rates. Therefore, the annual wage negotiations this spring that will determine pay levels for 2025 remain a more significant economic indicator for the BOJ than fourthquarter GDP.

S&P 500 (US500) 5,005.57 −24.16 (−0.48%)

Dow Jones (US30) 38,627.99 −145.13 (−0.37%)

DAX (DE40)  17,117.44 +70.75 (+0.42%)

FTSE 100 (UK100) 7,711.71 +114.18  (+1.50%)

USD Index  104.28 −0.02 (−0.02%)

by JustMarkets, 2024.02.19