European stocks edged up as the S&P 500 marked a new record high, fueling investor optimism over potential Federal Reserve interest-rate cuts. While real estate stocks saw gains in Europe, oil companies lagged due to a decline in crude prices. As anticipation for a crucial update on US inflation grows, traders are closely monitoring Treasury yields and the dollar, which wrapped up a six-week winning streak. The annual US inflation rate is expected to have dropped to 2.9% in January from 3.4% in the prior month, potentially marking the first reading below 3% since March 2021.
Tuesday’s inflation report is expected to be a major market event as traders seek clues on the timing of a possible first Fed rate cut. Investors are focusing on Fed officials’ cautious stance, with the chance of a Fed cut in March recently falling to 15% from the previous estimate of 65%. Despite the market not getting the expected number of Fed rate cuts, the global bond market outlook is positive according to UBS Global Wealth Management Chief Investment Officer Mark Haefele, who believes that continued disinflation should lead to the central bank starting to ease this year.
In Asia, with multiple markets observing Lunar New Year holidays, trading levels remained muted. The yen also held near a two-month low after a lack of encouragement from comments made by central bankers suggesting that the Bank of Japan will take its time raising rates. Additionally, reports of a potential diplomatic resolution to the war in Gaza have contributed to a decline in oil prices, following last week’s advance. Looking ahead, this week features several key macroeconomic events, including India CPI and US CPI reports, among other announcements from central bank officials and monetary policy updates around the world.