The Week Ahead
26 February

The Week Ahead – 26 February

Financial markets were led by the upward move in global equities over the week. The closely watched earnings announcement from graphic card company, turned AI darling, Nvidia Corp continued to propel global markets, while the Japanese NKY Index (+2.1%) reached an all-time high (of 39,000 pts), finally eclipsing its prior peak way back in 1989.

Domestic equity markets were flat on the back of a weaker resources sector, with both the energy (-2.6%) and materials (-2.1%) lower.  We are now through the majority of the domestic reporting season, and in our view, it’s been sound with around 80% of business reporting to date either outperforming or in-line with markets estimates, with the IT and consumer discretionary sectors stand outs.  This has resulted with an earnings upgrades (~+2.5%) across the broader market.

Bond markets were also little changed over the week, as markets continued to come to the realisation that cash rates would remain on hold for an extended period, with even the slight chance that the next move in cash rates could be up as opposed to down. The US Fed’s key measure of inflation (Personal Consumption Expenditure (PCE) Index) is f’cst to rise 0.4%m/m (Jan, +2.8% y/y), after rising 0.2% in Dec, while the Jan (y/y) CPI figure for Australia (f’cst +3.6%) is set to be +0.2% above Dec figures.  In addition, the domestic Un rate increased to 4.1%, its highest level in 2 years, which further adds to the near term challenges facing the RBA and its ability to cut rates.

Nevertheless, we continue to take the view that both domestic as well global cash rates are on hold and that the path to ‘target inflation’ levels will not be smooth.  This week will see a raft of economic data out of the US with inflation data (PCE Index), retail spending, manufacturing data, jobs numbers and home sales to be closely watch by the market. Aust retail sales data for Jan (f’cst +1.5%, +4.2% pcp) will also provide a gauge on consumer behaviour.

Manufacturing and services data out of China (PMIs) is expected to show a stagnant Chinese economy despite the recent moves by the PBOC to cut cash rates (-50bps to 10.0%), while CPI data out of Europe will be the focus.  While y/y CPI is set to fall -0.4% (to 2.9%), we are anticipating a higher print for Jan (+0.6%, +1.0 pcp), all of which points to no change on cash rates near term.

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