New York – Bonds and US equity futures regained ground on Tuesday as a measure of manufacturing inflation revealed a slowdown in price pressures. Contracts on the S&P 500 and Treasury yields stabilized after a surprise decline in December’s index of producer prices, extending a three-month downward trend. The annual growth rate stood at 1%, while the core gauge showed the weakest increase since the end of 2020.
Earlier, futures contracts had dipped following underwhelming quarterly results from major banks. Citigroup and Bank of America reported disappointing fourth-quarter performances, citing high interest rates and geopolitical tensions as contributing factors. However, JPMorgan Chase managed to reverse its initial decline, climbing 1.7% after forecasting further growth in net interest income.
Despite an overall optimistic outlook for the markets in 2024, concerns about diminishing corporate profits and the escalation of a Middle East conflict, which has led to an inflationary surge in oil, complicate the situation. West Texas Intermediate crude jumped by as much as 4.5% after coordinated military strikes against Houthi rebels in Yemen were launched by the US and its allies.
The combination of higher-than-expected consumer price inflation and recent military action has introduced uncertainties that could pose challenges for the Federal Reserve. Julian Emanuel, chief equity and quantitative strategist at Evercore ISI, acknowledged these factors, stating that they could potentially complicate the central bank’s decision-making process.
However, market expectations still anticipate a pause in interest rate hikes and the implementation of a more accommodative monetary policy in 2024, following the release of surprising US inflation data last Thursday.
The impact of rising crude oil prices was also felt in the foreign exchange market, as commodity-linked currencies such as the Canadian dollar and Norwegian krone gained strength. In Europe, energy companies TotalEnergies SE and Shell Plc contributed to a 1% spike in the Stoxx 600 index.
In summary, bonds and US equity futures rebounded after a manufacturing inflation gauge indicated a cooling of price pressures. Quarterly reports from major banks initially caused a dip in futures contracts, but JPMorgan Chase managed to recover. Concerns about corporate profit erosion and the Middle East conflict continue to complicate the outlook for the markets. The impact of military strikes in Yemen led to an inflationary surge in oil prices. These factors pose challenges for the Federal Reserve, (restating key facts without copying any content from the original article).