Hot US CPI pushes yields higher, Ukraine geopolitical news in focus

• US CPI increases at fastest pace in nearly 18 months in January
• Stocks mixed as Meta continues its incredible win streak at record highs
• Dollar jumps and then retraces as markets reassess tariffs and inflation
• Gold relatively steady even as Treasury yields surge higher

FX: USD made a one-week high in the wake of hot inflation data. But it gave back all of those gains through the US session. Seasonality is likely the chief driver of the outsized CPI prints, similar to the 2024 January data. Indeed, the first month of the year has seen the biggest number of beats (50%) and lowest number of downside misses (15%) in the data. Fed Chair Powell commented that there is uncertainty over policy, but the figures showed “we’re close but not there yet on inflation”.    

EUR traded off after the CPI figures but eventually finished higher on positive Putin/Trump Ukraine peace talks. There’s also been more talk about the strength in European equities this year, helping underpin a bid in the euro. The EuroStoxx 600 has risen nearly 8% so far, compared to a 2.5% rise in the US. The key pivot level for us remains the long-term low at 1.0448 and then the January top at 1.0532.

GBP is following similar, though lagging, price action to the euro. The 50-day SMA which sits at 1.2477 has capped more upside recently. The y-t-d peak is at 1.2549. We had another BoE official Greene stating it is appropriate to maintain a cautious ad gradual approach to removing monetary policy restrictiveness.

USD/JPY surged higher with the yen the big underperformer, as the 10-year US Treasury yield advanced strongly. We heard from BoJ Governor Ueda who said the pace of monetary adjustment should depend on the economic situation. There is a minor Fib level of the September to January rally at 154.32.

AUD continued to hold around the 0.63 zone after falling in the earlier part of the day. The 50-day SMA is at 0.6271. USD/CAD is sitting on the lower end of the long-held range below 1.43. The 50-day SMA is at 1.4327.

US stocks: The benchmark S&P 500 closed in the red, down 0.27% at 6,051. The tech-heavy Nasdaq settled higher, up 0.12% at 21,719. The Dow Jones finished down 0.5% at 44368. Cyclicals beat defensives, growth outperformed value while large caps continued to beat small caps. Tesla enjoyed a green day  though, while energy performed poorly.

Asian stocks: Futures are mixed. Stocks were choppy following the similar performance Stateside. The ASX 200 traded higher as strength in the top-weighted financial sector and the industrials atoned for the losses in tech. The Nikkei 225 advanced after the holiday closure amid recent currency weakness but pared all of its gains amid rising yields and tariff-related uncertainty. The Hang Seng and Shanghai Comp were varied with outperformance in Hong Kong led by strength in tech stocks. There were reports that Alibaba was going to partner with Apple to develop AI features for iPhone users in China.

Gold dipped to a low of $2864 immediately after the hot US CPI data but pared losses. That came after the intraday top at $2942 on Tuesday. Treasury yields popped higher with bets on a second Fed rate cut reined in.  

Day Ahead – UK GDP

We get growth numbers out of the UK later today. Expectations are for m/m GDP in December to rise to 0.2% from 0.1%. As a reminder,having started strong, UK growth fizzled out in the second half of last year and it looks like final-quarter GDP was flat, so just avoiding contraction. The data is expected to modestly improve this year as the government’s spending splurge comes through. However, 2025 growth is likely to be significantly weaker than the 2% forecast the Office for Budget Responsibility set last year. Likely revisions are an added challenge for the Treasury’s Spring Statement in March, where higher debt-interest costs have already eroded the government’s already thin fiscal headroom. Current BOE pricing sees around 66bps of cuts predicted in 2025.

Chart of the Day – Meta’s record breaking run

Meta is on an incredible win streak, currently up for 18 straight days. The stock has been in a long-term bull trend since lows in November 2022 around $93. The previous record streak of gains was 11 consecutive days in September 2015. The current record run is the best-ever streak among the Mag 7.

Recently, it printed record intraday highs last Thursday at $718.90. This run comes on the back the DeepSeek news and cheaper AI which is great news for Meta. Open source will also do well, the company is expanding the use of its in house chips, while the company has got leaner in recent days, after the announcement that they have laid off 5% (4,000) employees. This is aiming to improve operational efficiency and across several regions.  

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