This is our regular weekly market update.
Things got interesting this week on the markets, as U.S. stocks closed barely changed on Friday, after wavering between modest gains and losses driven by mixed bank earnings offset cooler-than-expected inflation news that buoyed hopes for interest-rate cuts from the Federal Reserve.
After briefly topping 4800 points in early trading, the S&P 500 fluctuated, slipping modestly negative in the final hour before edging higher at the close. And note that US markets will be closed on Monday for Martin Luther King Day.
Expectations for a rate cut of at least 25 basis points by the Fed in March moved up to 79.5%, according to CME’s FedWatch Tool, from 73.2% in the prior session. Friday’s data also sent Treasury yields lower, although recent comments by some central bank officials have pushed back on any potential rate cuts.
On Friday, data showed U.S. producer prices unexpectedly fell in December as the cost of goods such as food and diesel fuel declined, while prices for services were unchanged for a third consecutive month, in contrast to Thursday’s hotter-than-expected consumer inflation reading. The headline inflation rose more than expected to 3.4% from 3.1% printed a month earlier.
But all in all, yesterday’s inflation report was less than ideal, and the market reaction was mixed. The US 2-year and 10-year first rose then fell, whereas you would expect a swift shift in dovish Fed expectations following a bigger-than-expected jump in US headline inflation. The 2-year was last at 4.146 and the 10-year 3.944.
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