The financial markets faced a turbulent week as economic data from the United States took center stage, influencing investor decisions and affecting global currencies. The annual inflation rate in the US rose to 3% in January, with the core CPI increasing by 3.3%, surpassing expectations and stirring market sentiment. This development has put a hold on the "Bessent wants lower 10-year yields" trade, which had to be postponed due to the uncooperative economic data.
"Obviously the “Bessent wants lower 10-year yields” trade will have to wait as the economic data refuses to cooperate." – Bessent
Simultaneously, the German Federal Election is drawing near, scheduled for February 23. Although it hasn't dominated headlines, it remains a significant event on investors' radar. The AfD's odds of being part of the government have plummeted from 10% to 4%, with Polymarket viewing a fringe coalition as a minor risk. In the trading world, the order book remains liquid, with a bid/offer of 3.8%/4.2% on the AfD contract.
Gold prices took a hit this week, trading below $2,900 on Wednesday. Market participants are keeping a close watch on these prices as they react to broader economic trends. Meanwhile, the US Dollar displayed resilience despite a generally negative market mood. The benchmark 10-year US Treasury bond yield surged nearly 2% above 4.6% following the stronger-than-expected January CPI data.
In foreign exchange markets, the EUR/USD trade set its stop loss at 1.4224, indicating cautious sentiment amid the ongoing economic developments. The Federal Reserve remains on hold, with rate differentials suggesting a higher USD/CAD trajectory. Additionally, TD Bank's sale of its stake in Schwab could generate a CAD-positive M&A flow, further influencing currency markets.
The stronger-than-anticipated US CPI data suggests a potential for hot February figures before a rapid cooling period. This speculation has caught the attention of investors and analysts alike as they prepare for possible shifts in monetary policy and economic conditions.
As February 23 approaches, the German Federal Election is set to inject additional uncertainty into the markets. Although it has not received significant media coverage, its outcome could have repercussions for European and global markets. Observers are particularly interested in how political changes may affect Germany's economic policies and international relations.