Market Momentum Builds on Inflation Relief and Banking Boom
The US market is riding high on a wave of optimism, fueled by better-than-expected inflation data and a surge in banking stocks. Tuesday’s producer price index and Wednesday’s consumer price index both surprised to the downside, indicating a resumption of disinflation. This welcome news sent Treasury yields tumbling, with the 10-year yield plummeting 15 basis points before stabilizing at around 4.66%.
Banking Sector Sees Major Boost
The banking sector was a major beneficiary of the inflation relief, with Goldman Sachs, Citi, and Wells Fargo all posting gains of over 6%. The S&P 500 bank index, which has been outperforming the wider market all month, added another 3.4%. This impressive performance is set to continue, with another round of bank reports due on Thursday.
Geopolitical Tensions Ease
In addition to the positive economic news, the geopolitical landscape also saw some relief, with the announcement of a ceasefire accord between Israel and Hamas. However, this did little to impact crude oil prices, which remain near six-month highs in a tightening energy market.
Thursday’s Key Events
Today promises to be another busy day, with a slew of important economic releases and events on the calendar. The December retail sales report will provide insight into holiday season activity, while weekly jobless claims numbers will be closely watched following last week’s strong payrolls report. The Philadelphia Fed’s January business sentiment survey is also due out.
Fed Speakers Weigh In
Wednesday’s release of the Fed’s Beige Book showed a slight increase in economic activity in late November and December, with employment ticking up and prices rising moderately. However, Fed speakers noted that uncertainty remains high about the coming months, as they await policies from the incoming administration.
Global Markets React
Overseas, British “gilts” saw an even more dramatic recovery than US Treasuries, following a surprise downside inflation report and disappointing GDP and industrial data. The 30-year gilt has fallen back some 20bps from Monday’s 27-year peak, reigniting speculation about Bank of England easing. The pound also slipped again.
Asian Markets Join the Rally
Global stock markets followed Wall Street higher, with European stock indexes gaining almost 1% as German and other euro inflation updates showed price pressures remained contained last month. China and Hong Kong shares edged up, buoyed by state media reports of potential easing measures from Beijing in coming weeks.
Key Developments to Watch
Later today, investors will be keeping a close eye on US December retail sales, weekly jobless claims, and the Philadelphia Federal Reserve’s January business survey, among other key releases. The Senate confirmation hearing for US Treasury Secretary nominee Scott Bessent will also be closely watched for clues about the incoming administration’s policies.
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