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US Consumer Confidence Falls in February Amid Rising Inflation: Market Recap

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Miguel A. Rodriguez
Miguel A. Rodriguez
03 March 2023

Find out how the FED's tighter monetary policy and higher interest rates are affecting the market and stay up to date on the performance of the US stock market indices and the German Dax index. 

The last day of February brought weaker figures for the US economy, coupled with high inflation data from Europe. The CB Consumer Confidence in the US dropped to 102.9 in February from the previous month's 106.0, revised from 107.1, indicating that the final US consumer is being negatively impacted by high prices and the tightening of financing conditions after the Federal Reserve raised interest rates. The Federal Open Market Committee is expected to continue raising rates in future meetings.

Furthermore, the Chicago PMI figure for February was lower than expected, at 43.6 compared to the expected 45, indicating that the manufacturing sector is still contracting and remaining below the growth threshold. This figure is typically closely followed by traders.

This data shows the impact of the Federal Reserve's tighter monetary policy and higher interest rates on the economy, which is ultimately aimed at cooling it down to prevent inflationary pressures. However, it is contradictory that consumer confidence has decreased significantly in a labor market with full employment. Therefore, the upcoming non-farm payrolls and unemployment rate reports will be crucial in evaluating the Federal Reserve's future actions and the performance of financial assets.

Following the release of the economic data, the yields of the US Treasury bonds experienced a slight decrease, with the 10-year bonds yield dropping around 5 basis points. However, the yield remained at its highest levels in recent months.

Related: What are bonds and how do they work?

Initially, the dollar was negatively affected by the decline in bond yields. However, buying flows for the dollar during the end-of-month fixing reversed the downward trend, and the dollar ultimately ended the day without significant changes.

The US stock market indices experienced a session of fluctuation with no clear direction due to the typical movements resulting from portfolio balancing at the end of the month. Meanwhile, the performance of European indices was weaker, with the yields of European bonds seeing a significant increase following the release of high inflation figures. This suggests the possibility of the European Central Bank implementing more aggressive interest rates, with some analysts predicting a terminal interest rate above 3.50%. Such a move may have a negative impact on market sentiment.

The German Dax index lost approximately 0.30% in its recent session, although it is still holding in the higher range of its price range throughout the month of February.

Related: Dow Jones analysis and price predictions


Sources: Bloomberg, Reuters
 

 


 

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Miguel A. Rodriguez
Miguel A. Rodriguez
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Miguel worked for major financial institutions such as Banco Santander, and Banco Central-Hispano. He is a published author of currency trading books.