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INVESTINGBitcoin and Stocks Hit New Highs

The macro data from the USA on Friday were disappointing. The second February survey from the University of Michigan showed more pessimistic moods among American consumers, and the ISM index fell instead of rising, as forecasted by surveyed analysts. The impact on the US dollar was negative, but not catastrophic. The EUR/USD rate rose to 1.0855. Wall Street reacted to the data with increases and stock market indices once again set new historical records. Investors reinforced their hopes that the Federal Reserve will lower the cost of money in June. Yields on US bonds fell in response to the publications. Bitcoin continues to accelerate and is starting this week with further increases, reaching the level of 65,400 USD.

The University of Michigan report indicated a decrease for the first time in three months. However, the data are not catastrophic and do not reverse the upward trend. The weaker result may be a result of rising fuel prices, which could be amplified by higher inflation expectations. Over the course of a year, these increased to 3 percent, meaning they rose from 2.9 percent. Long-term expectations are stabilizing at 2.9 percent. As for the February business survey in American industry, the main index fell to 47.8 points from 49.1 points previously. The market consensus pointed to an increase to 49.5 points. For the 16th consecutive month, the index is below the neutral level, last being above it in October 2022. The worse result than in January was mainly due to employment reductions but also production and inventory reductions. The positive news is that foreign trade shows signs of revival. This is also indicated by the PMI index, which landed at 52.2 points, exceeding both forecasts and the previous result.

The market slightly changed its valuation and currently again gives about a 65 percent chance of the Fed easing monetary conditions already in June. Currently, its expectations largely coincide with the results of the dot chart which, published in December, pointed to three real moves this year, each of 25 bps.

This week promises to be abundant in terms of market events. The ECB will decide on interest rates. Here, no one seems to doubt that the bank will leave rates unchanged. Attention will shift to whether the institution will in any way indicate a possible date for the start of the easing cycle and whether the March communication will be slightly more concrete than that received in February. The RPP will also decide on interest rates. Here too, everything indicates that we will receive a stabilization of the rate level. The market will want to know what shape the anti-inflation shields proposed by the government (VAT on food, energy prices in H2 2024) will take in the coming months.

Hard publications will shift market attention to the NFP report on Friday, but before that the JOLTS, ADP and weekly data on the number of benefit applications will be assessed. This means that this week will bring us the latest picture of the US job market. If the market receives signals of more significant cooling, then the chance of a June cut, which is not yet certain, will increase. Let’s not forget the ISM report, which will show the current state of the service sector in the US.

Łukasz Zembik Oanda TMS Brokers

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