Macro Matters – Weekly review, w/c February 19
The financial markets responded sharply to higher-than-expected US CPI data, with bond yields spiking and equities retreating. Nvidia continued its meteoric rise, overtaking Alphabet in market capitalization, while Japan’s Nikkei hit a multi-decade high. Retail sales data showed unexpected declines, signaling potential headwinds for consumption.
Macro Matters – Weekly Review, W/C February 19
Macroeconomic / Geopolitical Developments
• Stock averages chop lower and bounce, bonds surge to higher yields through warmer US CPI
• Nvidia climbs higher, overtakes Amazon and Alphabet in market cap
• Nikkei hits multi-decade high
• US CPI warmer than expected
• Markets pare back Fed rate cut expectations
• US Retail Sales decline more than expected
Stock Averages Chop Lower and Bounce, Bonds to Higher Yields Through Warmer US CPI
The latest US Consumer Price Index (CPI) report exceeded expectations, fueling volatility across stock and bond markets. The CPI’s robust month-on-month and year-on-year increases, particularly in services inflation, heightened concerns about inflationary pressures. Bond prices fell sharply, leading to a surge in yields, with the 10-year Treasury note reaching a 2-1/4 month high of 4.291%. Equity markets saw significant declines as the Dow Jones Industrial Average experienced its largest daily percentage drop in 11 months.
Nvidia Climbs Higher, Overtakes Amazon and Alphabet in Market Cap
Nvidia’s market cap soared to $1.83 trillion, surpassing Alphabet to become the world’s fourth-most valuable company. The surge was driven by relentless demand for its AI accelerators and robust earnings expectations. Analysts project further growth as Nvidia prepares to release advanced AI chips and expand its dominance in the sector.
Nikkei Hits Multi-Decade High
The Nikkei Stock Average closed above 38,000 for the first time since 1990, fueled by strong corporate earnings, gains in chip-related stocks, and positive momentum in US markets. Investor optimism remains high, supported by Japan’s improving corporate governance and the ongoing global AI boom.
US CPI Warmer Than Expected
The January CPI report revealed a year-over-year increase of 3.1%, with core inflation holding steady at 3.9%. Shelter costs were a significant driver, marking their highest monthly jump since late 2023. The unexpected rise in inflation tempered expectations for near-term Fed rate cuts.
Markets Pare Back Fed Rate Cut Expectations
Following the inflation report, the odds of a May rate cut fell sharply, with markets now eyeing June as a more plausible timeline. Treasury yields surged in response, reflecting revised expectations for a delayed policy easing by the Federal Reserve.
US Retail Sales Decline More Than Expected
Retail sales fell by 0.8% in January, far exceeding the anticipated 0.1% decline. Sectors like building materials and autos were particularly weak, though the labor market’s resilience and easing inflation are expected to mitigate broader consumption risks.
What’s Ahead
Holidays:
• US markets are closed Monday, February 19, for President’s Day, with partial futures market closures.
Central Bank Watch:
• Tuesday: PBoC Interest Rate Decision.
Macro Data Watch:
• Wednesday: Global Manufacturing, Services, and Composite Flash PMI; EU CPI (MoM, YoY).
• Friday: UK Consumer Confidence; German GDP (QoQ, YoY).
Earnings Watch:
• Key earnings include Walmart and Home Depot (Tuesday) and Nvidia (Wednesday).
This week’s focus will be on PMI and CPI data alongside Nvidia’s earnings, which could further shape market sentiment.
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