Wall Street starts lower, Inflation in Canada slowing down
Market Overview: Fed’s rate stance, oil up amidst tensions, major mergers, and retail variances. Wall Street dips, China eases, Canada inflation slows
Interest Rate Uncertainty and Monetary Policy
Following the Federal Reserve’s release of minutes from its January meeting, the rates market has adjusted closer to the Fed’s initial indications at the end of the previous year. With two and 10-year Treasury yields reaching their highest levels for 2024, Fed futures pricing indicates approximately 90 basis points of cuts for the year, aligning closely with the 75bps indicated by Fed policymakers in December. Meanwhile, China’s recent 25 basis points cut to mortgage reference rates aimed at stimulating credit and reviving the property market has been met with cautious market sentiment.
Oil Prices and Geopolitical Tensions
Oil prices surged to their highest levels in over three months, buoyed by geopolitical tensions as Iran-aligned Houthis continued attacks on shipping in the Red Sea and Bab al-Mandab Strait. These attacks have heightened concerns about supply disruptions, contributing to the first positive year-on-year change in crude prices since October.
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Corporate Deals and Market Sentiment
The largest U.S. corporate deal of the year unfolded as Warren Buffett-backed Capital One announced its acquisition of Discover Financial Services in a $35.3 billion all-stock transaction, aiming to create a global payments giant. The deal, subject to intense antitrust scrutiny, signals a significant development in the financial sector. In Europe, Barclays unveiled a three-year plan to rejuvenate its stock price, including substantial cost reductions and shareholder returns.
Retail and Industrial Performance
U.S. retail and industrial sectors experienced mixed results, with poor retail and industrial soundings for the previous month. While Walmart reported strong sales and profit, reflecting robust consumer demand, Home Depot’s lukewarm forecast attributed to higher interest rates impacting the homebuying market highlighted sectoral variations. The impact of freezing January weather on sales data adds further complexity to interpreting retail performance.
Market Performances in the United States
Wall Street opened lower after the President’s Day holiday, with futures for the Dow Jones Industrial Average and the S&P 500 slipping 0.3%. Retail giants Walmart and Home Depot presented contrasting quarterly results, influencing market sentiment. The energy sector witnessed fluctuations as U.S. benchmark crude retreated, contrasting with earlier gains driven by geopolitical tensions.
China and Asia-Pacific
China’s monetary easing measures aimed at bolstering the property market saw a modest market response, with benchmarks rising in China but slipping in Tokyo, Sydney, and Seoul. Hong Kong’s Hang Seng index gained 0.6%, while the Shanghai Composite rose 0.4%. The decision to maintain the 1-year loan prime rate but cut the 5-year rate reflects efforts to support the recovery of the property market.
Canadian Market
Inflation in Canada decelerated in January, with the Consumer Price Index rising 2.9% year-over-year, following a 3.4% increase in December. Lower gasoline prices and reduced costs for food purchased from stores contributed to the headline deceleration, despite ongoing price pressures.
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