Inflation data in Europe and the USA: a look at the market
Today, investors' attention is focused on the publication of inflation data for January in Germany and France, which precede the pan-European statistics scheduled for Monday. Yesterday, the same indicator in Spain was 2.9%, which may hint at the potential dynamics of inflation in the Eurozone and the general economic trends of the region.
Later today, the PCE report for December will be released in the United States. However, since yesterday's preliminary GDP already included quarterly data on private consumption, today's release is unlikely to have a significant impact on the markets. The Federal Reserve is likely to focus on the labor cost index for the fourth quarter, which is a key indicator of wage pressures.
Macroeconomic developments
Results of the Asian trading session
Japan has released core inflation data for January, which accelerated to 2.5% from 2.4%, in line with forecasts. This inflation rate remains above the Bank of Japan's 2% target, which supports expectations of further monetary policy tightening.
Global economic news
In Europe, the ECB, as expected, cut its key interest rate by 25 basis points to 2.75%. However, the president of the regulator, Christine Lagarde, did not make new clarifications on the future course of policy. Another rate cut is expected in March, but the prospects for completing the easing cycle remain unclear.
The economic growth of the Eurozone in the fourth quarter turned out to be zero (0.0% QoQ), not meeting analysts' expectations (0.1% QoQ). In annual terms, the region's GDP grew by 0.7% in 2024. The data shows a significant gap in growth rates between the countries: France and Germany showed a decline, while the economies of Spain and Portugal grew at a high rate. In 2025, improved real incomes and lower ECB interest rates are expected to stimulate private consumption, which will be the main driver of Eurozone GDP growth (forecast: 0.9% YoY).
- In France, GDP in the fourth quarter decreased by 0.1% QoQ after an increase of 0.4% in the previous period. Over the past two quarters, the average growth was only 0.15% QoQ, which has a negative impact on the overall economic background of the Eurozone.
- In Germany, GDP decreased by 0.2% QoQ due to a reduction in exports, despite an increase in consumer and government spending. By the end of 2024, the economy shrank by 0.2%. A gradual recovery in quarterly growth is expected in 2025, however, due to the low base effect, the forecast for the year remains at zero (0.0% yoy).
- In Spain, inflation rose to 2.9% in January amid rising energy prices.
- In the United States, the preliminary GDP for the fourth quarter was 2.3% QoQ versus 3.1% in the third quarter, which indicates a slowdown in the growth of the American economy. However, by the end of 2024, GDP growth was 2.8%, which confirms the sustainability of private consumption.
- In Denmark, the central bank, following the ECB, lowered the key rate by 25 bps to 2.35%, maintaining the difference of -40 bps between the rates of the two regulators.
Stock market
Global stock indexes as a whole rose, with European stocks once again showing outperformance. Interestingly, recent trends show broader growth, not just the dominance of American tech giants (MAG 7). European indexes outperform American ones, and indexes with equal weight of securities outperform traditional ones based on capitalization.
In the US market, all major indexes ended the day in positive territory.:
- Dow +0,4%
- S&P 500 +0,5%
- Nasdaq +0,3%
- Russell 2000 +1,1%
There is a mixed dynamic on Asian platforms, with South Korea being among the outsiders. European index futures are also showing multidirectional movements, while growth continues in the United States, led by Nasdaq.
Debt market
European bond yields declined: by 8 bps on the 2-year section of the curve, by 6 bps on the 10-year section. Investors were preparing for a possible easing of the ECB's position, and weak GDP data from Germany, France and Italy reinforced this trend. As a result, markets are anticipating an additional 70 bps of ECB rate cuts by the end of the year.
The foreign exchange market
The EUR/USD exchange rate did not show significant fluctuations against the background of the expected ECB rate decision.
The focus remains on the news background related to possible tariffs by the Donald Trump administration against Canada, Mexico and China.
The Australian dollar remains one of the weakest G10 currencies this week, due to the fact that inflation in the country in the fourth quarter was below forecasts, and its base level approached pre-pandemic values for the first time since 2021.
In Europe, natural gas prices continue to rise due to limited supply. At the same time, preliminary business activity indices (PMI) indicate a possible improvement in economic growth in the region.
Results
The market remains highly volatile due to the dynamics of inflation in Europe and the United States, as well as political factors such as potential trade restrictions from the United States. Investors' attention is focused on the decisions of central banks and the prospects for further rate cuts in 2024-2025.