Global Markets Shift Focus to Data Agenda
Technology companies operating in the semiconductor chips and artificial intelligence fields, led by Nvidia, have had a significant impact on the direction of the markets.
Nvidia exceeded expectations by achieving a 769% year-on-year increase in net profit to $12.29 billion in the last quarter.
Following the better-than-expected earnings announcement in the last quarter, the company’s stock price closed the week with a 9% increase. Nvidia’s share price rose to $823.94, temporarily pushing the company’s market value above $2 trillion.
Meanwhile, uncertainty remains about when the Federal Reserve (Fed) will start cutting interest rates, and the minutes of the Federal Open Market Committee (FOMC) meeting released last week also indicated concerns among officials about the rapid easing of monetary policy.
The minutes stated that Fed officials placed greater emphasis on the possibility that more progress in reducing inflation might take longer than expected.
In the minutes, Fed officials highlighted the uncertainty about how long the restrictive monetary policy stance should be maintained, stating, “Most officials raised concerns about the risks of moving too quickly to ease policy and emphasized the importance of carefully evaluating the data to determine whether inflation is sustainably decreasing to 2 percent. However, a few officials noted that an overly restrictive stance could pose downward risks to the economy if maintained for too long.”
While it is certain that the Fed will keep interest rates stable in March, the probability of starting interest rate cuts in May decreased to 25% and in June to 67%.
In addition, international credit rating agency Standard & Poor’s reported that it did not change its 2024 outlook on US monetary policy and projected that the Fed would lower its policy rate by 25 basis points at the June meeting and by 75 basis points by the end of the year.
Statements from Fed officials were closely monitored last week. Richmond Fed President Thomas Barkin emphasized that despite the decrease in headline inflation, price pressures continued in sectors such as housing. Fed Board Member Michelle Bowman expressed her opposition to the possibility of interest rate cuts in the near future.
Fed Vice Chairman Philip Jefferson indicated that the Bank’s strong actions pushed the policy rate into a very restrictive zone, and that the tight stance in monetary policy created downward pressure on economic activity and inflation.
Jefferson stated that it would probably be appropriate to start lowering the policy rate towards the end of the year if the economy develops as expected, but he could not provide a timeline due to risks.
Philadelphia Fed President Patrick Harker also noted that lowering interest rates too early was risky. Harker stated that the Fed was in the final step towards the 2% inflation target, and recent data showed uneven progress in slowing inflation.
IMF Spokesperson Julie Kozack also warned that despite the slowdown in inflation, it was not yet close enough to the target, and urged central banks to be cautious about early easing of monetary policy.
While developments in the Middle East continued to be the focus of investors, the price of Brent oil fell by 2.2% to $80.9 per barrel last week. The price of gold per ounce also rose by 1.2% to $2,036. The yield on U.S. 10-year Treasury bonds ended the week at 4.2560% with a 36 basis point decline. The dollar index also fell by 0.3% to 103.9 last week.
Historic highs were seen on the New York Stock Exchange
Companies in the artificial intelligence and semiconductor fields contributed to the movement of indexes, and a positive trend was observed in New York stock markets last week.
The spacecraft “Odysseus,” sent into space to land on the moon as part of the “IM-1” mission of the US-based company Intuitive Machines with the SpaceX-produced Falcon 9 rocket, landed on the moon. The company, which made its first landing on the moon since 1972, saw its shares rise by more than 30% last week.
On the other hand, companies continued to release their financial results in the country. Walmart, which reported better-than-expected earnings and revenue in the fourth quarter of last year, saw its shares rise by over 3% last week. The company also announced that it would acquire smart TV manufacturer Vizio for $2.3 billion in cash or $11.50 per share.
Despite the decline in sales, Home Depot, one of the largest retail chains in the US, exceeded expectations for profit and revenue in the last quarter of last year, but the total sales growth forecast by the company for the 2024 fiscal year fell below expectations. Home Depot’s shares rose by 3.2% last week.
On the macroeconomic data front, the number of initial jobless claims in the US fell to 201,000 in the week ending February 17, reaching the lowest level in five weeks.
The Purchasing Managers’ Index (PMI) for the manufacturing sector in the US rose to 51.5 in February, the highest level in 17 months, while the services sector PMI fell to 51.3 in February, the lowest level in three months.
Existing home sales in the US increased by 3.1% in January, exceeding market expectations.
With these developments, the S&P 500 index gained 1.70%, the Dow Jones index gained 1.30%, and the Nasdaq index gained 1.40% last week.
The S&P 500 index reached 5,110.04, the Dow Jones index reached 39,282.28, and the Nasdaq index reached 16,134.22 points, all reaching record highs.
In the week starting on February 26, new home sales on Monday, Dallas Fed manufacturing activity index, durable goods orders on Tuesday, CB consumer confidence index, GDP, wholesale inventories on Wednesday, personal income and spending on Thursday, and the University of Michigan consumer confidence index on Friday will be closely monitored.
Positive trend in European stock markets except for the UK
A buying-heavy trend was observed in European stock markets last week, with expectations continuing for the European Central Bank (ECB) and the Bank of England (BoE) to start cutting interest rates in June.
The minutes of the ECB’s January monetary policy meeting revealed that members of the ECB Governing Council agreed that it was too early to discuss interest rate cuts.
The ECB suffered losses for the first time since 2004 due to interest rate hikes last year to fight inflation. According to data released last week, the Consumer Price Index (CPI) in the Eurozone fell by 0.4% on a monthly basis in January, while it increased by 2.8% on an annual basis, in line with expectations.
According to the Consumer Expectations Survey of the ECB, the average inflation expectation of consumers in the Eurozone for the next 12 months increased from 3.2% to 3.3%.
BoE Governor Andrew Bailey also stated that it was not unreasonable for markets to expect interest rate cuts from the BoE this year.
Construction output in the Eurozone increased by 0.8% in December compared to November and by 1.9% compared to the same period of the previous year, while the number of new car sales in the EU market increased by 12.1% in January compared to the same month of the previous year, reaching 851,690.
On the German side, the government revised its growth expectation for this year from 1.3% to 0.2 due to weak global demand, geopolitical uncertainties, and high inflation. The German economy also shrank by 0.3% in the last quarter of 2023, following the previous quarter, due to the effect of high inflation reducing the purchasing power of households.
On the other hand, the Bundesbank, Germany’s central bank, said last week that weakening external demand, cautious spending by consumers, and rising financing costs could continue to limit investments, noting that the German economy could fall into a technical recession after shrinking in the last quarter of 2023 due to the effect of high inflation reducing household purchasing power.
The sharp drop in the share price of HSBC, one of the largest banks in the UK, drew attention due to the decline in pre-tax profits in the last quarter and the loss in the value of its Chinese financial institution affiliate.
While the FTSE 100 index in the UK fell by 0.1% last week, the DAX index in Germany gained 1.76%, the CAC 40 index in France gained 2.56%, and the MIB 30 index in Italy gained 3.22%.
The DAX index reached 17,443.74 points in Germany, and the CAC 40 index reached 7,976.40 points, reaching record highs.
Next week, the consumer confidence index, real sector confidence index, and economic confidence index in the Eurozone will be announced on Wednesday, the unemployment rate and CPI in Germany on Thursday, and the manufacturing industry PMI, CPI, and unemployment rate in the Eurozone on Friday.
Japan sets a record in Asian stock markets
The increased risk appetite in futures markets after Nvidia’s financial results also spread to Asian stock markets.
The People’s Bank of China (PBoC) lowered the five-year Loan Prime Rate (LPR), which serves as a reference for real estate loans, to revive the real estate market.
In order to revive the real estate market, the PBoC unexpectedly reduced the five-year loan prime rate—the benchmark interest rate for home loans—by more than the expected 25 basis points.
The PBoC lowered the five-year loan prime rate by 25 basis points to 3.95% from 4.20% for home loans, while the one-year loan prime rate remained at 3.45%. Markets had expected the rate cut to be 10 basis points.
Analysts stated that volatility increased in stock markets after the interest rate decision and pointed out that the increased trading volume of various equity mutual funds in the country indicated that state-backed funds continued to support the markets.
In Japan, it was noteworthy that exports in January exceeded expectations with a 11.9% year-on-year increase, according to data released last week.
While the Manufacturing Purchasing Managers’ Index (PMI) fell to 47.2 in Japan, the lowest level since August 2020, the services sector PMI fell to 52.5.
The Bank of Korea kept its policy rate at 3.50% for the ninth consecutive meeting.
The dollar/yen pair, which continued its rise for the third consecutive week, ended the week at 150.4, up 0.1%.
As a result of these developments, the Nikkei 225 index in Japan gained 1.59%, the Hang Seng index in Hong Kong gained 2.36%, the Shanghai Composite index in China gained 4.85%, and the Kospi index in South Korea gained 0.54% on a weekly basis.
The Nikkei 225 index in Japan reached 39,156.97, surpassing its 1989 peak.
Next week, economic confidence index in Japan will be announced on Tuesday, retail sales and industrial production on Wednesday, and unemployment rate on Friday.
Eyes turn to growth data domestically
In the domestic market, the Borsa Istanbul BIST 100 index continued its upward trend for the 8th consecutive week, closing the week at 9,374.20 points, up 1.34%, achieving the highest daily and weekly closing in history.
The index also reached its highest level at 9,416.70 points. The dollar/tl ended the week at 31,0444, up 0.65%. Turkey’s 5-year credit default swaps (CDS), which continued to decline, dropped to 287 basis points.
The Central Bank of the Republic of Turkey (CBRT) decided to keep its policy rate, the one-week repo auction interest rate, unchanged at 19.5%.
In the announcement regarding the interest rates from the CBRT, it was stated that “The Committee has evaluated that the existing level of the policy rate will be maintained until a significant and permanent decrease in the main trend of monthly inflation is achieved and inflation expectations are close to the projected interval.”
Next week, the domestic economic confidence index and foreign trade balance on Wednesday, GDP on Thursday, and manufacturing industry PMI on Friday will be closely monitored.
Economists participating in the expectation survey estimated that GDP increased by 3.97% in the fourth quarter of last year.
The average growth expectation for the entire year 2023 among economists was 4.40%, and the average growth forecast for the end of 2024 was 3.44%.
Analysts stated that technically, the 9,400 and 9,500 levels could be seen as resistance, with 9,300 and 9,200 points as support levels for the BIST 100 index.
