The recent data suggests that the labour market is standing strong despite multiple announcements of layoffs, especially in the technology and media industries, where tax codes have hurt the cost of employment. At the same time, wholesale inventories data reporting the first increment in over a year, particularly in automotive stocks, points to steady economic momentum that could delay interest rate cuts this year as the Federal Reserve tries to bring inflation down to its 2% target through its policy tightening cycle. Nevertheless, financial markets have tempered predictions of the timing of the next rate cut to May, given signals from Fed officials that they are unlikely to ease policy until clear disinflationary trends emerge.
The S&P 500 briefly touched 5,000, a historical moment since its creation in 1957, reaching a staggering 20.4 forward P/E ratio while valuation is double the M3 money supply. Though some see further gains with potential Fed rate cuts on the table, others find buying less enticing at this stretched valuation, seeking undervalued companies or gold that's been holding above the $2000 level since mid-December.
Robust US job data and hawkish Fed rhetoric pressure prices around $2,030. A resurgent dollar and climbing Treasury yields, made worse by the lack of Chinese participation due to the Lunar New Year, killing volatility. With bets on March rate cuts fading below 20%, gold struggles to find momentum to go higher, although technically, the price rejects daily support and might go higher next week.
Geopolitical tensions, particularly the Israeli-Palestinian conflict, have seemingly pushed oil prices up 3% recently, on track for a weekly gain of over 5%. However, analysts expect to return to rangebound trading in lieu of comfortable oil supply fundamentals. While increased U.S. road travel in 2023 might suggest higher future demand, Russia's exceeding production quotas and rising non-OPEC output could limit gains.
The dollar index rose but pulled back after 30-year bonds pushed yields higher. A slashing rate cut expectations to only 17% for the next meeting. Despite China's weaker-than-expected inflation data, its yuan held steady thanks to continued support from the central bank. However, analysts see upside risks for USD/CNY due to fading seasonality and persistent dollar strength. BOJ Governor Kazuo Ueda expects easy monetary conditions to continue even after the central bank ends its negative interest rate policy, possibly next month.