Wall Street stumbles with the CPI data in focus
Hotter-than-expected US inflation for January dashed hopes for a sooner Fed pivot, sending Wall Street down, with the three US benchmark indices finishing lower for the month. Despite sticky inflation, the tech-dominated index, Nasdaq held up relatively strong and outperformed both Dow and S&P 500 through February, suggesting that dip-buys in growth stocks may be still in place amid the recent positive economic data. It seems “good news is good news” and investors are perhaps pricing for a mild recession if there is one on the way. In March, investors’ focus will be on the upcoming CPI data and the response from the Fed meeting. Further cooling inflation and a steady pace on rate hikes may offer a bullish factor to the US markets.
Besides, we need to keep an eye on the spike in the US bond yields and a rebound in the US dollar. Shall the trends continue, risk assets, including equities and commodities, are expected to be still under pressure. But again, the inflation trajectory will steer further movements.
ASX lags amid mining stocks’ weakness, but the RBA’s policy steers sentiment
The Aussie dollar fell and ASX pulled back during a busy earnings season in February as sticky inflation promoted the RBA to turn hawkish, sending banking stocks down on concerns about default risks, while big miners downgraded their growth outlooks due to a decline in commodity prices. But China’s reopening may be still a catalyst for Australia’s exports in 2023, which may offer a rebound opportunity once commodity markets shrug off the recession fear-induced downbeat moves. The RBA will most likely stay on course for a rate hike cycle, but the recent economic data shows that the economic outlook gets gloomier, inflation and rising rates deteriorated consumer power and house owners’ affordability in home loans. The Reserve Bank is expected to raise the official cash rate for another 25 basis points in the March meeting, but whether the country’s inflation has peaked is key for its policy path.
The New Zealand dollar falls on cooling inflation expectations
The New Zealand dollar slumped through February on both internal and external factors. Domestically, the 2-year inflation expectations fell to 3.3% from 3.61% three months ago, promoting the RBNZ to slow down rate hikes to a 50 basis points increase, despite a hawkish reiteration by the Reserve Bank. Globally, the US dollar regained momentum amid the US Fed’s guidance for “higher for longer” rates. The dollar Trade Weighted Index (TWI) fell 1.7%, and the NZD declined 6% in February. However, recent economic data shows that New Zealand’s economy picks up from the fourth quarter after the country reopened its border. Business confidence rebounded for a third straight month in January. As there will not be a monetary policy meeting from the Reserve Bank in March, key economic data, such as the fourth quarter GDP and Business confidence, will provide clues for the country’s economic trajectory.
China's reopening worsens Singapore's inflationary pressure
February has been a muted month for the Singapore market as the Straits Times Index fell 3% after a bullish run that was catalysed by China's reopening. This was likely made worse due to inflationary worries as Singapore's January core inflation rate came in at 5.5%, an amount that's deemed the fastest in 14 years. The anticipated Budget 2023 address did its part to quell these fears. To help Singaporeans adapt to the increasing cost of living, the government announced additional payouts and retirement planning aid.
Gold may have completed a short-term correction
Gold almost perfectly moves divergence with the US dollar and the US bond yields since last year, which is seen a month-long decline in February as the USD regained strength amid a jump in bond yields. But there may be an opportunity for the precious metal to rebound and continue its upward trend since January as market participants may reassess the global economic health and central banks’ futures policy path in March. Bonds have probably been oversold in the last month, which requires a technical rebound, which could lead to a pullback in the US dollar, in turn buoying commodity prices.
Oil markets may brew for a new wave of rebound
There are three factors that may boost the oil markets. Firstly, China’s reopening. After a sharp decline in economic activities in late 2022 and early 2023 due to the Covid disruptions, China is set to pick up its rebounding momentum according to the recent positive economic data, which improves crude oil’s demand outlook. Secondly, Russia’s output cuts. Russia is to cut production by at least 500,000 barrels per day and the reduction may be expanded to a quarter amid western sanctions. Third, US’s crude inventory may decline as more refineries recover operation after maintenance. Also, the world’s largest economy is seen better-than-expected state from the recent economic data.
How far will the Chinese stock markets retreat?
The Hang Seng Index slid about 13% in February as Chinese stocks may have been overbought after a multi-month rally amid China’s reopening optimism. While the downside momentum looks still strong, China’s upcoming economic data, including manufacturing and service PMIs, new yuan loans, and CPI will provide clues for the country’s recovery trajectory. Chinese government signals to tighten its regulation on tech companies after a period of relaxation, and the Chines e-commerce giants, such as JD.com and Pinduoduo, are planning for another round of cash-burning campaigns to compete with rivals, which tends to deteriorate investor sentiment. China’s rebound will be a bumpy journey and uncertainties will bring volatilities as well as opportunities ahead.