An overview of the day ahead in U.S. and global markets by Mike Dolan:
Despite trailing global markets this year, the S&P500 reached another record high on Tuesday, propelled by a mix of new developments and the upcoming digestion of Federal Reserve minutes.
Amidst a confusing and tumultuous beginning to the year, global investors have shifted their focus from expensive U.S. equities to more affordable European stocks and Chinese tech. Recent talks regarding the end of the Ukraine war and Germany's weekend election have sparked interest in European stocks.
The shifts in portfolio investment allocations and mutual fund flows this year are noteworthy, as are changes in economic news compared to extreme expectations. Citi's economic surprise indexes show a positive trend in the euro zone for the past eight months, while the U.S. equivalent has turned negative, favoring Europe the most since July.
Despite these relative measures, the overall positive global economic outlook continues to buoy markets, enabling U.S. indexes to keep edging upward even as global investment portfolios adjust.
U.S. futures maintained slight gains into Wednesday.
Regarding current geopolitical issues, tensions persist as President Trump reiterated threats of 25% tariffs on autos, drugs, and chips. Concerns have arisen over Washington's direct talks with Russia about ending the war without involving Ukraine, potentially endangering Kyiv's government.
European leaders have expressed frustration over Ukraine's absence in the talks, anticipating increased security risks. This has led to discussions about bolstering defense spending and exploring funding avenues. European defense stocks surged this week, and there is talk of increased public spending in Germany post-election, prompting speculation about a broader eurozone revitalization.
The shifting dynamics have impacted bond yields, with German bund yields rising and risk spreads between Germany and other euro sovereigns narrowing. The euro slipped on Wednesday due in part to Trump's tariff threats, lifting the dollar and U.S. Treasury yields.
Gold prices reached another all-time high amid trade and military tensions and rising inflation. Spot gold hit a record of $2,946.75/oz, marking the ninth record of the year.
Global bond yields were affected by disappointing inflation reports, with Canada and reporting higher-than-expected CPI gains last month.
Further insights are expected from the Federal Reserve's latest meeting minutes, housing starts data, and ongoing earnings reports. Key events on the agenda for U.S. markets on Wednesday:
- U.S. January housing starts/permits, New York Fed's February service sector survey - Federal Open Market Committee releases minutes from its January meeting; Fed Vice Chair Philip Jefferson gives a speech - U.S. corporate earnings reports from various companies - U.S. Treasury conducts a $16 billion sale of 20-year bonds