Central Bank Pauses Drive Risk-On Sentiment

A palpable sense of relief permeates the air as central banks worldwide signal a possible end to their aggressive rate hike cycles. This has resulted in a 'Risk-On' sentiment, leading to significant movements in various sectors.

Key Factors for Today

• Investors react positively to the pause in rate hikes, causing a decline in bond yields.
• The S&P 500 enjoys a boost from a 'dovish pause' and eagerly anticipates the impact of the upcoming jobs report.
• The Bank of England maintains rates at a 15-year high while displaying a "hawkish pause."
• The European Central Bank expresses optimism for a soft landing despite economic challenges.
• The WTI oil price ends a losing streak in a Risk-On environment, but lingering concerns loom.

Market Movers

• The S&P 500 continues its remarkable ascent, gaining 1.80% despite Apple's Q4 sales disappointment.
• The Bank of England's decision to keep interest rates at 5.25% triggers a 0.45% rise in the British Pound.
• ECB's chief economist Philip Lane emphasizes the possibility of a soft landing in the Eurozone.
• WTI oil rises by 1.76%, supported by Saudi Arabia's extended oil output cut and a 19% drop in Venezuelan exports.

Economic Calendar

• UK S&P Global/CIPS Services PMI Final
• Euro Area Unemployment Rate
• Fed Barr Speech
• Canadian Employment Change
• Nonfarm Payrolls
• S&P Services PMI
• ISM Services PMI
• Fed Barr Speech

The Big News

S&P 500's Impressive Streak Continues

The S&P 500's remarkable performance persisted despite Apple's underwhelming Q4 sales. This surge marked the index's best session since April and further bolstered the 'Risk-On' sentiment that has been sweeping the market. This extraordinary resilience can be largely attributed to falling bond yields and the Federal Reserve's recent 'dovish pause.' The S&P 500 managed to lock in a formidable 4-day streak, closing the week nearly 5% higher, leaving investors eagerly anticipating a potential breach of the 4380 mark.

Bank of England Maintains Rates with a Hawkish Tone

The Bank of England made a resolute decision to keep interest rates steady at 5.25%, maintaining a hawkish stance. Governor Andrew Bailey's address highlighted genuine concerns regarding persistently high inflation, surging energy prices, and the economy's concerning proximity to a recession. While the decision to keep rates unchanged was expected, it is the tone of the Bank's statement that raised eyebrows. Notably, three members of the Monetary Policy Committee (MPC) voted for a 25bps rate hike, underlining a prevailing sentiment of urgency to combat inflation. This decision prompted a modest 0.45% rise in the value of the British Pound, but it still struggles to recapture the elusive $1.22 level. The currency's ability to pivot higher could be the key to breaking through to $1.2290.

ECB's Lane on Eurozone's Soft Landing

In a complex economic landscape, the European Central Bank's chief economist, Philip Lane, offered insights into the Eurozone's economic future. Despite tightening credit conditions, Lane expressed optimism about the possibility of a soft landing. He acknowledged the challenges posed by a potential "new energy shock" resulting from higher oil and gas prices. Nevertheless, Lane maintained his belief that the Eurozone's wage growth, while currently falling, could be a positive sign indicating a return to the ECB's 2% inflation target by 2025.

WTI Ends Losing Streak Amid Ongoing Concerns

The West Texas Intermediate (WTI) oil market managed to end its three-day losing streak with an impressive 1.76% gain. This rebound was buoyed by Saudi Arabia's announcement to extend its voluntary oil output cut of 1 million barrels per day (bpd) through December, ensuring a degree of market stability. Additionally, despite the recent easing of sanctions, Venezuelan oil exports fell by 19%, further bolstering oil prices.