Daily Market Outlook - Monday, Feb. 5

By Patrick Munnelly of Tickmill

Monday, February 5, 2024 6:00 AM EST

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Asian stocks were mostly subdued due to the red-hot jobs report and Fed Chair Powell's comments indicating a likely delay in a March rate cut. In a pre-recorded TV interview aired last night, US Fed Chair Powell reiterated that more progress on inflation’s final descent was needed before the central bank would cut rates, aligning with comments made at last week’s policy meeting press conference. Powell also indicated that the scale of cuts priced in by financial markets seemed excessive relative to the Fed’s own expectations, while suggesting that the first cut would not occur until the middle of the year. The Nikkei 225 was supported by recent currency weakness, with earnings influencing the biggest movers. Hang Seng and Shanghai Comp initially faced pressure from a continuation of the equity rout, but Chinese markets later recovered from their lows.

In the UK the Office for National Statistics (ONS) published revised UK labor market data, adjusted for new population estimates. Notably, the latest read on the UK unemployment rate, covering the three months to November, was reported to be 3.9% compared with a previous estimate of 4.2%, indicating that the labor market was tighter than previously assumed.

Looking ahead, there was minimal chance that the US and UK central banks would change interest rates at their policy updates last week. Both the Federal Reserve and the Bank of England maintained interest rates at the 5.25-5.50% range and 5.25%, respectively. Financial markets, however, focused on signals about the timing and extent of potential interest rate reductions this year.

This week, the UK and US inflation prints for January are due. Meanwhile, key survey data this week will provide insight into evolving price pressures and wider economic trends. In particular, today’s US ISM services survey is expected to rise to 52.5 from 50.5, indicating positive growth in service sector activity. In Europe, the final estimates of the UK and Eurozone services PMI for January are expected to be unrevised. Questions remain about the PMI survey's accuracy in predicting actual GDP growth. However, the UK services survey has signaled growth for a third consecutive month, while the Eurozone picture still reflects contraction, albeit with increasing optimism for future prospects.

Stateside focus will be on speeches by Fed officials Raphael Bostic, Loretta Mester, and Thomas Barkin for clues on the timing of rate cuts after last week's policy meeting and Friday's strong U.S. employment numbers, which may impact the central bank's confidence in inflation.

Overnight, the Reserve Bank of Australia is expected to leave interest rates unchanged at 4.35%. Markets will observe if it adjusts its hawkish bias following recent softer data. In the UK, the British Retail Consortium (BRC) releases its January update of retail sales.