Australia’s labor market report is weak. Japan’s GDP unexpectedly contracted

Chicago Fed Chairman Goolsbee stated yesterday that even if inflation is slightly higher for a few months, it would still be consistent with a path back to target. He added that the Fed’s current policy is pretty restrictive and said that he doesn’t support the idea of waiting until inflation hits 2% in 12 months to start cutting interest rates. That raised the odds that the Fed could begin cutting rates this spring. Markets estimate the odds of a 25 bps rate cut at 14% for the March 19-20 FOMC meeting and 46% for the April 30-May 1 meeting.

Eurozone industrial production for December unexpectedly rose by 2.6% m/m, beating expectations of 0.2% m/m and the most significant increase in 16 months.

ECB Vice President Guindos said yesterday that it would take some time before the ECB has the necessary information to confirm that inflation is steadily returning to our 2% target. His colleague, ECB Governing Council representative Makhlouf, added that the short-term outlook for the Eurozone economy points to stagnation amid tightening financing conditions, weak business and consumer confidence, and weak foreign demand. Swaps put the odds of an ECB rate cut at 25 bps at 8% at the March 7 meeting and 55% at the April 11 meeting.

Silver gained support on Wednesday after Eurozone industrial production unexpectedly rose rapidly in 16 months, a positive for industrial metals demand. Gold also gained support as an inflation hedge after the US 10-year breakeven inflation rate rose to a 3-week high on Wednesday.

WTI crude futures fell as low as $76 a barrel on Thursday, extending losses from the previous session as official data showed that US oil inventories rose by about 12 million barrels last week, the highest in three months. The latest figure also exceeded market expectations for a 2.56 million barrel rise in inventories and raised demand concerns in the world’s largest oil consumer. Meanwhile, OPEC’s latest report forecasts global oil demand growth in 2024 and 2025, contrasting with more conservative estimates from other sources.

Asian markets traded mixed on Wednesday. Japan’s Nikkei 225 (JP225) was down 0.69% for the day, China’s FTSE China A50 (CHA50) will not trade for the rest of the week due to Chinese New Year celebrations, Hong Kong’s Hang Seng (HK50) was up 0.84%, and Australia’s ASX 200 (AU200) ended the day negative 0.74%.

Japan’s economy unexpectedly contracted 0.4% year-on-year in the fourth quarter of 2023, falling short of market forecasts that expected 1.4% growth. It was the first decline in five years amid high inflation and an uncertain global economic outlook.

Traders are looking to add new positions on Chinese indices after Chinese authorities said the country’s holiday season could witness a record 9 billion domestic passenger trips this week. Meanwhile, Beijing has taken a dozen steps since January to cushion the rout in China’s stock market while supporting weak demand in the real estate market amid the lingering real estate crisis.

The Australian dollar held below $0.65 in a weak market reaction as weak employment data reinforced a dovish view of the country’s monetary policy. Australia’s unemployment rate rose to a two-year high of 4.1% in January, and employment increased by just 500, while analysts had expected 30,000 new jobs. The Reserve Bank of Australia is expected to cut interest rates by a total of about 40 basis points this year, with the first move coming in August. Earlier this week, RBA Governor Michele Bullock said inflation didn’t need to slow to 2.5% before the central bank would consider cutting the money rate. However, she emphasized that the central bank remains open to the possibility of a further rate hike in the face of persistent inflation. Expectations for Australian consumer inflation in February 2024 stood at 4.5%, unchanged for the third consecutive month and at its lowest level since January 2022.