Last week was marked by inflation data in the US. They coincided with consensus expectations. This immediately eased the pressure and gave way to optimism that 2023 could loosen its grip. The S&P 500 rose, 10-year bond yields fell and the US dollar retreated against a basket of currencies. This is the complete opposite of 2022. Nonetheless, price pressures remain high, but if a similar market condition persists we could see a noticeable easing in the pace of Fed tightening.

Last week's data supports the idea of a pause by the Fed. Expectations are for one 0.25 basis point increase in February and another in March. This would reach the 5% target, where a pause in tightening is very likely.

Commodities

Both oil and natural gas prices ended the week mixed. Oil rose given the improving economic environment in China. Natural gas prices in Europe continued to fall, reaching prices below levels last seen since before the Russia-Ukraine conflict. Base metals, including gold, silver and copper, ended the week higher.

What will drive the market?

Investors will be watching earnings results closely. They will show the extent to which U.S. companies can cope with elevated costs squeezing profit margins.

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