By Michael Brown Senior Research Strategist at Pepperstone
DIGEST – Stocks slipped yesterday, despite lacking an obvious catalyst to trigger such risk aversion, while metals wobbled too, and Treasuries gained across the curve. Today, January’s US CPI report highlights the calendar.
WHERE WE STAND – Short & sweet this Friday morning; as not only has it been a hell of a long week, but it’s also ‘Friday the 13th’, and I don’t want to go tempting fate!
Data-flow was again relatively light yesterday, and not especially impactful.
Q4 UK GDP disappointed, with the economy growing just 0.1% QoQ in the final three months of last year, unchanged from the pace seen in Q3. Not only is this meagre pace not worth celebrating at all – despite some in Westminster popping the champagne post-release – it must also be set in the context of an economy that has grown at a quarterly clip over 0.5% in just 3 of the last 15 quarters, but also one where risks to the outlook continue to tilt firmly to the downside.
Across the pond, the weekly jobless claims figures were rather uneventful, with both the initial and continuing claims metrics, at 227k & 1.862mln respectively, both close enough to consensus not to cause especially much concern. In addition, neither print pertains to the February nonfarm payrolls survey week, further lessening the data’s importance.
Suffice to say, neither of those prints shook up markets especially much, though what had been a bit of a lull post-NFP and pre-CPI did turn into rather more risk averse proceedings as the day wore on, even if there was no particularly obvious catalyst for this sourer tone.
In any case, stocks did take a lurch lower on Wall St, again led by the tech sector. To be clear, there was no real trigger for the downside, though it did have a whiff of broad de-risking about it, as opposed to a sectoral rotation, especially with two-thirds of the SPX ending the day in the red. Regardless, I still see little reason to question what remains a solid fundamental bull case (robust earnings growth, resilient economic growth, plus looser monetary/fiscal policy as the year goes on). Hence, I continue to view dips in the equity complex as buying opportunities.
That wobble in stocks did trigger some moves elsewhere, with precious metals sliding too, as gold fell back beneath $5,000/oz, while Treasuries found some notable haven demand with the long-end leading gains. As I quite often say, I’m unconvinced that any participants’ investment cases should change based on one single day of somewhat erroneous price action. As a result, this is a dip in precious metals that I’d be buying, and I remain of the view that curve steepeners are the way to play the ‘run it even hotter’ US economic outlook that the year ahead is likely to bring.
LOOK AHEAD – January’s US CPI report highlights the docket today.
Headline prices are seen having risen 0.3% MoM/2.5% YoY last month, with the core metrics also expected to print 0.3% MoM/2.5% YoY. Data of this ilk would reinforce the idea that the US economy continues to experience gradual disinflation, despite the upside price risks presented by tariffs, though it’s important to recall that January is typically a ‘noisy’ month for CPI, as firms hike prices at the start of the year, and the BLS recalculate seasonal adjustment factors. In any case, the figures are unlikely to materially alter the Fed policy outlook, with the reaction function tilting heavily towards the labour market for the time being.
Elsewhere, remarks are due from ECB Vice President de Guindos, as well as BoE Chief Economist Pill, with the latter likely to reiterate what appears to be an increasingly misplaced hawkish stance. It’s also worth bearing in mind the potential for gapping risk over the weekend, pending any unexpected news, especially with the US away on Monday for President’s Day.