February's CPI report came in hotter, climbing unexpectedly to 3.2% from 3.1% in January, a setback for further progress towards the Fed's 2% target. Core inflation has also been reported to be higher at 3.8%, driven by service inflation, which stuck at 5.2% given strong wage growth. The hot data severely reduced the odds of a Fed rate cut at the next two meetings to near zero. Markets now see cuts more likely starting in June as the Fed aims to cool the tight labour market, which drives service inflation. However, cutting rates could be disruptive with inflation still exceeding targets and midterm elections approaching. The Federal Reserve faces a tricky balancing act to engineer a soft landing without harming the growing economy.
EQUITY
Although inflation came higher than consensus, major US stock indices climbed up to 1%. Tech giants such as Oracle, Nvidia, Alphabet, Microsoft, and Meta rallied on increased cloud demand for AI offerings, while industrials lagged in part due to troubles at Boeing and airline stocks like Southwest Airlines. Hong Kong service industries, including accommodation, transport, and support services, suggest a recovery from the pandemic era that saw its index strengthen.
GOLD
Gold prices flat in the Asian session after slumping 1.1%, the most in a month, as U.S. inflation raised concerns that the Fed might postpone an interest rate cut for longer, even beyond June. However, the excess liquidity in the market has supported the flow of funds into commodities, including base metals and gold. It is uncertain whether the momentum can be preserved as profit-taking is also taking place with a high valuation in such a short time.
OIL
Oil prices stagnated, although industry data shows a larger draw in U.S. crude inventories and strong demand growth forecasts from OPEC for the coming years. The Organisation of the Petroleum Exporting Countries maintained its forecast of robust global oil demand growth of 2.25 million barrels per day in 2024 and 1.85 million bpd in 2025, citing an eventual reduction in interest rates and an improvement in global economic conditions.
CURRENCY
The U.S. dollar steadied and retraced after inflation data pushed the price higher, raising expectations for the Fed to keep interest rates elevated for longer. The British pound traded within a narrow range ahead of key economic data releases in the U.K., including GDP figures and production. The yen is losing momentum from speculation that the BoJ could soon end its ultra-loose monetary policy, supported by reports of major companies agreeing to steep wage hikes.
