DAILY MARKET NEWS - 14-02-2024

Ariff Azraei

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US consumer inflation came in a little bit higher than expected at 3.1% in January, which rattled hopes of March Fed rate cuts, despite a deceleration from December's reading. High rents are the main component of these sustained price pressures, keeping the fed away from pressing the easy button. Although Chair Powell remains optimistic about a soft landing, the Fed must choose between preventing reinflation and avoiding economic disruption from delayed rate reductions. From the current market perspective, equity has already priced in March cuts, which is why this dilemma sent ripples through markets on Tuesday, pushing down stock futures and boosting the dollar and bond yields.


Inflation coming in hot sent chills through Wall Street as data shattered hopes of early cuts, triggering a broad equity and commodity market sell-off. The Dow's near record highs evaporated in its steepest one-day plunge in almost a year, while rate-sensitive tech giants and small-cap stocks bore the brunt of the selling pressure. The market's repricing of Fed expectations is reflected in surging Treasury yields and plummeting rate cut bets.


Gold prices stagnated around a two-month low, struggling to re-enter $2,000 levels after the US consumer inflation report pressured the precious metal. While a stronger dollar and rising Treasury yields added further headwinds, gold's next test looms at $1,975, a level coinciding with December's FOMC meeting that ignited the previous rally.


Crude oil prices retreated from a high of $83.2 after a rally on geopolitical tensions, limited by US crude inventories build-ups. While inflation data pushed the dollar higher, tight US fuel supplies and ongoing Middle Eastern unrest provided countervailing support. OPEC's demand outlook leaves the market struggling between profit-taking and potential upside driven by supply constraints. For now, prices are stagnant, and it is looking for further catalysts.


The dollar surged to three-month highs after U.S. inflation data beat expectations, killing bets on an early Federal Reserve rate cut until June. The yen bore the brunt, tumbling past the key 150 level since November low, as did the euro and franc. Broader Asian currencies also followed through, reflecting the narrowing yield gap between riskier and low-risk assets.