Semiconductor stocks continue to rally. The first interest rate cuts by central banks are expected in June

The US core PCE deflator for January declined to 2.8% y/y from 2.9% y/y in December, which matched expectations and was the slowest rate of increase in 2 years. US weekly initial jobless claims rose by 13,000 to 215,000, indicating a weak labor market vs. expectations of 210,000. US personal spending in January rose by 0.2% m/m, matching expectations. Personal income for January increased by 1.0% m/m, which was stronger than expectations of 0.4% mom and the largest increase in a year. Chicago PMI for February unexpectedly declined 2.0 to 44.0, which was weaker than expectations for a rise to 48.0 and the sharpest rate of contraction in 7 months. January US home sales unexpectedly fell by 4.9% m/m, which was weaker than expectations for a 1.5% m/m increase and was the steepest decline in the last 5 months.

Atlanta Fed President Bostic said yesterday that if inflation continues to decline as he expects, it will probably be appropriate for the Fed to start easing rates this summer. Currently, markets are pricing in a 25 bps chance of a rate cut of 3% at the March 19-20 FOMC meeting and 21% at the next meeting on April 30-May 1.

Shares of chip companies rose on Thursday after Citigroup said it remains optimistic about semiconductor stocks given solid demand. The artificial intelligence market continues to grow as businesses and organizations actively buy chips for artificial intelligence.

The Bank of Canada is forecast to cut the overnight interest rate in June. The timing roughly coincides with when the US Federal Reserve and the European Central Bank will cut their first interest rate.

German retail sales for January unexpectedly fell by 0.4% m/m, weaker than expectations of 0.5% m/m. German unemployment for February rose by 11,000, showing a weaker labor market than expected 5,000. The unemployment rate for February was unchanged at 5.9%, weaker than expectations of 5.8%. The German Consumer Price Index (EU harmonized) for February declined to 2.7% y/y from 3.1% y/y in January, which was in line with expectations.

ECB Governing Council spokesman Holzmann said yesterday that he sees no significant negotiations on lowering borrowing costs before the ECB’s June meeting. Swaps are pricing in a 25 bps chance of a 25 bps ECB rate cut to 5% at the next meeting on March 7 and 22% at the April 11 meeting.

Crude oil prices rose on Thursday on expectations that OPEC+ will extend next week’s oil production cuts by about 2 million bpd beyond March. In addition, ongoing attacks by Houthi rebels on commercial ships in the Red Sea have disrupted Middle Eastern oil supplies and bolstered US physical oil markets as foreign buyers turn to US crude supplies to avoid transportation problems.

Natural gas prices increased on Thursday after the EIA’s weekly natural gas inventories fell by 96 billion cubic feet, more than the expected 85 billion cubic feet.

Asian markets were mostly up yesterday. Japan’s Nikkei 225 (JP225) gained 0.87%, China’s FTSE China A50 (CHA50) was up 0.70% on Thursday, Hong Kong’s Hang Seng (HK50) was down 0.29% on the day, and Australia’s ASX 200 (AU200) was positive 0.96% on the day. Most Asian stocks extended gains on Friday, following strong overnight gains on Wall Street, with Japanese and Australian markets hitting record highs amid growing hopes of an interest rate cut in 2024. Chinese stocks also rose slightly, even as purchasing managers’ index (PMI) data showed that business activity in China remained sluggish in February. China’s manufacturing sector contracted for the fifth consecutive month, dragging down overall business activity, even though a rise in consumer spending during the New Year holiday period helped non-manufacturing businesses.

Yesterday, Bank of Japan (BoJ) board official Takata said the 2% price target is finally approaching, reinforcing expectations that the Bank of Japan will end its negative interest rate campaign. But earlier today, BoJ Governor Kazuo Ueda said it was too early to conclude that inflation was close to sustainably reaching the 2% inflation target and emphasized the need to scrutinize more data on the wage outlook. The divergent views underscore the difficulties within the Bank.