Broad Lift in Inflation Sees Markets Pare Back Aggressive Rate Cuts

(AI Video Summary)

January has been a more active month compared to earlier weeks, with inflation being a bit higher than expected in the US, European Union, and UK. This has caused bond markets to adjust their expectations for interest rate cuts in 2024, leading to a positive trend in the dollar. Snow looks at the dollar index, which shows that the dollar’s value has been going up. He suggests that if US retail sales data is better than expected, the dollar could continue to rise.

Snow also talks about the yields on Treasury bonds. The two-year Treasury yield has been trying to stop decreasing, which is good for the dollar. He then focuses on the dollar yen currency pair. He mentions that upcoming inflation data from Japan could affect the Bank of Japan’s monetary policy. Snow thinks that the dollar yen could go down in the long term if Japan moves away from negative interest rates. But the inflation data will help determine if any policy changes are likely and if there could be a broader decrease.

Moving on to the stock markets, Snow points out that there has been a more cautious mood lately because of slightly higher inflation and geopolitical risks. He mentions that the FTSE has gone down, possibly influenced by a higher demand for the pound sterling. He also notices that global indices have been trending downward, with the S&P 500 showing a double top formation. If short trades gain confidence, the next level to look out for is 46.07.

Snow then discusses Asian indices, specifically mentioning disappointing economic data from China. This has caused sell-offs in various regional indices and has also affected the Australian dollar, which is seen as a riskier currency. The Australian dollar has gone down, and Snow advises being cautious when considering short trades as the currency is getting close to being oversold.

Lastly, Snow briefly talks about the pound sterling, which has seen a positive movement because of higher UK inflation. However, he notes that the strong US dollar could limit further gains. Resistance levels to watch are at 1.2736 and 1.2795. Snow finishes by highlighting the importance of upcoming US retail sales and Japanese inflation data, which will be key events to keep an eye on for the rest of the week.