The USD is the strongest and the GBP is the weakest as the North American session begins.

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The USD is the strongest and the GBP is the weakest as the North American session begins. US yields are higher. Stocks are little changed after the strong US jobs report on Friday. The US launched a number of attacks over the weekend against Houthi rebels in Yemen but the markets are taking it in stride. Crude oil is down marginally despite the increased activity (down -$0.35).

On Sunday, the awaited interview with Federal Reserve Chair Powell on ‘60 Minutes’ came and went. The interview was recorded on February 1 ahead of the strong US jobs report.. Powell said the sentiment regarding the current economic strength is cautiously optimistic, allowing for a deliberate approach to the timing of potential rate cuts. Confidence is on the rise, yet there is a desire for further assurance before initiating such a significant step as reducing rates, especially given the progress being made on inflation. There’s openness to moving sooner if signs of labor market weakness emerge or if inflation decreases significantly and convincingly. However, the persistence of inflation might delay any action. The expectation is set that the March meeting may be too premature for having the confidence necessary to begin rate cuts, emphasizing the lack of a straightforward, clear path forward. Inflation is anticipated to decline in the first half of the year due to base effects, with 12-month inflation rates expected to decrease throughout the year. Despite recent evaluations, there’s no indication that the December forecasts for a year-end policy rate level of 4.6% would be substantially revised. The consensus among policymakers leans towards cutting rates within the year, with a firm stance that political considerations do not influence their decision-making process. Reflecting on past decisions, it’s acknowledged that an earlier policy tightening might have been advantageous. The risk of recession is not viewed as elevated, nor are current issues in commercial real estate seen as precursors to a crisis. Challenges in China are not expected to significantly impact the US economy, though some minor effects may be felt. Geopolitical risks are considered the most pressing short-term threats, albeit more so for other regions than for the US.

In the written article accompanying the interview the journalist wrote:

  • The most likely time for the first interest rate cut will be the middle of the year

The journo did not attribute this to Powell, and indeed such a specific timing remark didn’t appear in the transcript. However, the fact that it was written in the article but not actually said by Powell caused a stir, even if only briefly. Market pricing for the June meeting is around 85% for a cut so it probably isn’t too far from what the first step will be.

A week after jobs, the Fed and a slew of earnings, this week, the economic calendar is much lighter:

Monday:

Tuesday:

  • RBA rate decision, 10:30 PM Monday (Tuesday locally). No change.
  • BOC Macklem speaks at 12:45 PM

Wednesday:

  • NZD Employment change for QoQ 4:45 PM ET Tuesday (Wednesday locally in NZ). 0.3% QoQ and 4.3% unemployment rate

Thursday:

  • US initial and continuing jobless claims. 8:30 AM ET

Friday:

  • RBA Gov Bullock speaks 5:30 PM ET Thursday (Friday locally in Australia)
  • Canada Employment report. 8:30 AM ET. Est 15K vs 0.1K last month. 5.9% unemployment rate).

Fed policymakers Mester put speaks on Tuesday, Kugler and Barkin become Wednesday. Barkin is also scheduled to speak on Thursday.

The US treasury will auction off 2-year, 10-year and 30 year coupon issues on Tuesday, Wednesday and Thursday respectively.

The US stocks are mixed/lower in pre-market trading. Boeing woes continue with other production issues. Shares are down -2.13% in premarket trading. The earnings released this morning are mixed:

McDonald’s Corp MCD Q4 2023 USD

  • Adj. EPS: $2.95 BEAT Expectation: $2.82
  • Revenue: $6.41 billion MISS Expectation: $6.45 billion
  • Global comp sales: 3.4% MISS Expectation: 4.8%
  • Sharea are down -0.52% in premarket trading.

Estee Lauder Companies Inc EL Q2 2023 USD

  • EPS: $0.88 BEAT Expectation: $0.55
  • Revenue: $4.28 billion BEAT Expectation: $4.19 billion
  • FY EPS View: $2.08-$2.20 MISS Expectation: $2.33
  • Shares are surging and up 16.12% in premarket trading.

Caterpillar Inc CAT Q4 2023 USD

  • Adj. EPS: $5.23 BEAT Expectation: $4.75
  • Revenue: $17.1 billion MISS Expectation: $17.11 billion
  • FY24 Revenue View: “Broadly similar” to FY23 Expectation: *0.5% to +1.5%
  • Shares are trading up 4.42% in premarket trading.

The earnings calendar – like the economic calendar – is less daunting compared to last week when Microsoft, Alphabet, Apple, Meta, and Amazon all reported. Below is a list of some of the bigger releases this week:

Monday: Palatir
Tuesday: Lilly, BP, Toyota, Ford, Chipotle, Fortinet
Wednesday:Alibaba, Uber, CVS Health, Paypal, Disney
Thursday: Conoco Phillips, Pinterest, Expedia
Friday: Pepsico

A snapshot of the markets as the North American session begins currently shows:

  • Crude oil is trading down -$0.13 or -0.18% at $72.15. At this time Friday, the price was trading at $73.77
  • Gold is trading down $-17.51 or -0.85% at 2022.17. At this time Friday, the price was trading at $2054.45
  • Silver is trading down $-0.29 or -1.25% at $22.39. At this time Friday, the price was trading at $23.16
  • Bitcoin traded at $43,256. At this time Friday, the price was trading at $43,108.

In the premarket for US stocks, the major indices are modestly lower:

  • Dow Industrial Average futures are implying a decline of -52 points. On Friday, the index rose 134.58 points or 0.35%. For the week the index rose 1.43%
  • S&P futures are implying a decline of -6.36 points. On Friday, the index rose 52.44 points or 1.07%. For the week the index rose 1.38%
  • Nasdaq futures are implying a loss of -1.0 point. On Friday, the index rose 267.31 points or 1.74%. For the week the index rose 1.12%

In the European equity markets, the major indices are trading mixed.

  • German DAX, up 0.09%.
  • France CAC unchanged.
  • UK FTSE 100, +0.51%.
  • Spain’s Ibex, -0.34%.
  • Italy’s FTSE MIB, 1.13% (delayed by 10 minutes).

Shares in the Asian Pacific markets were mixed. China Shanghai composite was another 1% after tumbling by -6.18% last week:

  • Japan’s Nikkei 225, +0.54%
  • China’s Shanghai composite index , -1.02%
  • Hong Kong’s Hang Seng index, -0.15%
  • Australia S&P/ASX, -0.95%.

Looking at the US debt market, yields are trading higher to start the trading day. The US jobs report on Friday sent yields sharply higher but the 10-year yield was still down -11 basis points for the week.

  • 2-year yield 4.449% +7.9 basis points. At this time Friday, the yield was at 4.229%
  • 5-year yield 4.083% +.1 basis points. At this time Friday, the yield 3.828%
  • 10-year yield 4.119% +8.8 basis points. At this time Friday, the yield was at 3.83%
  • 30-year yield 4.303% +7.6 basis points. At this time Friday, the yield was at 4.116%
  • The 2-10 year spread is at -32.6 basis points. At this time Friday, the spread was at -34.9 basis points
  • The 2-30 year spread is at -14.1 basis points. At this time Friday, the spread was at -11.1 basis points.

In the European debt market, the benchmark 10-year yields are higher:

European benchmark 10 year yields

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