Daily Market Outlook – Wednesday, Jan. 31

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 Asian markets were mostly quiet as a result of numerous earnings and important data releases at the end of the month. Initially, the Nikkei 225 declined after disappointing Industrial Production and Retail Sales data, and was also affected by hawkish comments from the BoJ Summary of Opinions. However, the index gradually recovered all of its losses. The Hang Seng and Shanghai Comp underperformed following the latest Chinese PMI data, which indicated that Manufacturing PMI matched estimates and remained in contraction territory for the fourth consecutive month.The January Lloyds Business Barometer, released earlier this morning, indicated a significant increase in business confidence, rising 9 points to its highest level in two years. Confidence improved across most regions of the UK, with notable gains observed in the North East, London, and the West Midlands. The services sector saw the largest improvement, while manufacturing and construction also experienced substantial rises, although retail confidence declined. Despite the positive sentiment, price expectations decreased for the second consecutive month, while hiring intentions remained solid.Today’s focal point is the latest US Federal Reserve policy update. Similar to the ECB last week, neither the Fed today nor the Bank of England tomorrow are expected to enact immediate policy changes. The focus will thus be on their messages regarding future policy intentions. Despite economic activity holding up better than expected and inflation measures trending downwards, there’s speculation that the Fed may opt for rate cuts, especially as inflation nears the target and considering the proximity to November’s elections. Consequently, the possibility of a rate cut as early as March is currently estimated at 50-50, with at least two cuts anticipated by June and 5 to 6 cuts for the entirety of 2024. Given that today’s update won’t include Fed policymakers’ revised forecasts, there won’t be a ‘dot plot’ of interest rate intentions. However, it’s likely that this forecast wouldn’t markedly differ from December’s, which indicated three rate cuts in 2024. The press statement may remain largely unchanged, except for acknowledging recent positive developments. Notably, if the reference to further ‘additional policy firming’ is omitted, it could signal a potential rate cut in March. While Fed Chair Powell may caution against excessive market rate cut expectations and may not explicitly suggest a March move, he is likely to hint at anticipated rate declines in 2024.
 Overnight Newswire Updates of Note

(Sourced from Bloomberg, Reuters and other reliable financial news outlets)
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CFTC Data As Of 12/01/24

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