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Review 12Feb - 16Feb24: US Large Cap and Tech Finished the Week Lower After Huge OPEX Expiry, Rotation Out of US Into Asia and Europe Driven by Value and Growth Optimism

Risk markets mostly retained their gains despite an unpleasant upside surprise in inflation. Large-cap US equities and tech stocks underperformed, as investors shifted their focus towards small caps and markets in Asia and Europe. The S&P 500 lost 0.42% of its value following Friday's significant OPEX expiry, while the Nasdaq 100 declined by 1.54% due to profit-taking. Small caps (Russell 2000) outperformed with a 1.75% rally over the week. Japan's equity market notably surged, with the Nikkei climbing 4.41% to its highest levels since December 1989. European equities also displayed strength, with the CAC40 rising by 1.58%, the DAX by 1.13%, and the FTSE100 by 1.84%, despite confirmation of a recession in the second half of 2023. In terms of sectors, energy (+2.71%), materials (+2.44%), and utilities (+1.59%) were the standout performers, while technology (-2.54%) and consumer discretionary (-0.49%) weighed on market performance. In emerging markets, China's onshore market was closed for the Lunar New Year break, but offshore equity indices suggest a continued rebound next week.

There were no policy meetings among developed market (DM) central banks; however, a plethora of speeches by policymakers largely confirmed previous signals that current data do not warrant premature easing, but rate cuts are on the horizon despite the latest hiccup in inflation numbers. In emerging markets (EM), the central banks of the Philippines and Russia kept rates on hold as expected.

Bond yields across both developed and emerging markets mostly trended higher last week following the US CPI upside surprise. Yield curves in the US and Euro Area inverted by 5 and 9 bps to -37bps and -44bps, respectively. US 2-year yields rose by 16 basis points, while 5, 10, and 30-year yields increased by 14, 11, and 7 basis points.

The US Dollar made marginal gains after the CPI upside surprise, primarily against low-yielding currencies, but struggled to gain broader momentum. In developed markets, the EUR/USD ended the week slightly lower (-0.22%), while USD/JPY rose by 0.68% and USD/CHF by 0.73%. The Norwegian Krone (NOK) and Swedish Krona (SEK) continued to appreciate despite the stronger USD, with the USD/NOK and USD/SEK down by 0.85% and 0.06%, respectively. USD strength in emerging markets was more widespread, with significant increases in USD/PEN (+1.27%), USD/CZK (+0.96%), and USD/HUF (+0.68%). Conversely, the USD/ZAR was down by 0.70% and USD/MXN by 0.25%. Key data releases of last week:

  • ZEW Continues to Improve Despite Dismal Current Conditions (read more here)

  • US CPI Surprises in January: Market Needs to Recalibrate Expectations for US Interest Rates (read more here)

  • UK Inflation Holds Steady, Supporting Recent BoE Policy Shift (read more here)

  • Japan Stumbled into Technical Recession in H2 2023 on Weak Domestic Demand (read more here)

  • UK GDP for Q4 Confirms Technical Recession in H2 2024 (read more here)

  • US Retail Sales Collapse After Holidays (read more here)

  • UK Retail Sales Soar in January: Biggest Leap Since 2021 Signals Economic Revival (read more here)

  • U.S. Producer Prices Rise More Than Expected in January, Highlighting Persistent Inflation (read more here)

  • Michigan Consumer Confidence Rises to Highest Since July 2021 Amid Optimistic Economic Outlook (read more here)

  • CFTC Leveraged Money Positioning Update for the Week to Feb13 (read more here)


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