Today’s data series failed and the Fed added a warning

Afternoon developments in the main financial markets are no longer as good as the beginning of the day. Stocks and bonds have taken a hit and are trying to rally again. American stock indices lose about 0.7 pct, European ones partly cut their gains, and in the case of the DAX, AEX or FTSE 100 indices down to zero. Bond yields are slightly above yesterday’s levels.

After some evidence of the resilience of positive sentiment in equities, we were not too confident that today’s events could dampen investor sentiment. In the end, however, information pointing in a clearly negative direction had a certain impact.

On the data front, the US PPI confirmed that price developments are not as favorable as believed. Manufacturing inflation did fall (to 6.0 pct), but less, all January data, including core data, were above consensus and December saw an upward revision. The Philadelphia Fed’s index of industrial activity plunged unexpectedly deep below zero despite the positive signs we got earlier from New York. Even in the details of the report, we practically do not find favorable information about February’s activity. Weekly applications for unemployment benefits ended up below the 200,000 threshold again and indicate that nothing is changing yet in the very overheated labor market. And data from the real estate sector show a worse decline in the number of newly built houses for January, and given the revision, for December as well.

All in all, then, the real economy is sending pretty mixed signals about strong consumer demand and a cooling industry, while price pressures are slowly receding. Expectations of a higher peak of Fed rates and a longer period of tight conditions receive another argument, and Loretta Mesterová’s statement also fits in here. At the last session, she saw strong reasons for raising rates by 50 bps (in the end, 25 passed). She added the usual rhetoric we’ve been hearing from the central bank lately, but also a warning that the Fed may increase the pace of rate hikes if conditions warrant.

Mesterová is among the hawks on the Fed’s monetary committee, which certainly also applies to James Bullard, who is scheduled to speak tonight.

The Eurodollar is slightly correcting the intraday decline and trading at 1.0680. The koruna started stronger but is back to 23.70 per euro. Oil surrendered daily gains.