🔍 The focus this week: US inflation

Take it from the good ole Waffle House: inflation isn’t over. Just last week, the 24/7 breakfast joint added a 50-cent surcharge on all egg orders at its 2,000 locations across the country, blaming cost increases related to the bird flu. But, look, it’s not just eggs that are, ahem, ruffling feathers ahead of the next US consumer price report. See, January’s inflation is notoriously difficult to predict because of seasonal swings. And this time around, there are also climate disaster effects to factor in. The California wildfires are expected to have caused a considerable jump in new and used car prices – enough to stir an upward move in inflation.

What’s more, there’s a growing sense that even containing inflation at its current, higher levels might become a more difficult battle for the US Federal Reserve. Just last week, the White House set the stage for higher prices across much of what Americans buy – imposing steep new levies on goods coming in from the country’s biggest trading partners. It slapped 25% tariffs on goods from both Mexico and Canada, only to pause them for a month. It also announced a 10% tariff increase on goods from China, which took immediate effect. And now, the threat of an escalating trade war – with all the resulting damage it could inflict on economic growth – has become a major concern for stock and bond investors.

Markets hate uncertainty – and a recent run of government policy announcements, followed by reversals, has made them uncomfortably volatile. But that could be the new way of things: so investors may need to learn to ignore the short-term noise and focus on the long-term outlook.

📅 On the calendar

• Monday: Earnings: McDonald's, Vertex Pharmaceuticals.
• Tuesday: US small business optimism index (January). Earnings: Coca-Cola, Shopify.
• Wednesday: US inflation (January), Japan producer price index (January). Earnings: Barrick Gold, CME Group, Kraft Heinz.
• Thursday: UK economic growth (December), UK industrial production (December), China inflation (January), eurozone industrial production (December). Earnings: Deere, Airbnb, Applied Material, Coinbase.
• Friday: US retail sales (January). Earnings: Moderna.

👀 What you might’ve missed last week

US

• Two Magnificent Seven firms delivered results, not 100% living up to their highfalutin nickname.
• US officials started work on a plan to create a sovereign wealth fund.

Europe

• The Bank of England cut interest rates by 0.25% and warned about US tariff fallout.

Asia

• Nissan and Honda threw their merger plans into reverse.

✍️ What does all this mean?

The latest pair of quarterly earnings from Big Tech were mixed, at best. Alphabet delivered higher-than-expected profit and an 11% rise in the all-important digital ads, but weaker sales in its cloud division. Amazon reported strong results from the last quarter, but its weaker-than-expected outlook for this quarter’s profit – a result of plans to invest a ton of cash into AI – concerned investors. The last of the Magnificent Seven, AI darling Nvidia, will post its results on February 26th. Investors may be watching through their fingers, fearing a slowdown in spending on their all-conquering chips.

The heads of the US Treasury and Commerce departments began exploring a plan to create a sovereign wealth fund for the country – which, if approved, could launch in a year. Some officials have said the investment fund could be seeded with the $5.7 trillion in assets the government already owns, which would make it the world’s biggest sovereign fund by far.

The Bank of England cut the UK’s key interest rate to 4.5% from 4.75% – its third trim in six months. The central bank also slashed the economy’s 2025 growth forecast to 0.75%, from 1.5%, citing the impact of recent cost increases to employers and consumers, and potential uncertainty over global trade stemming from recent US tariff moves.

Nissan Motor pulled out of an agreement to merge with Honda after the two sides failed to see eye to eye. Nissan’s board walked away when Honda attempted to turn the rival into a fully owned subsidiary. The deal’s collapse will likely spell trouble for Nissan as it was counting on its Japanese peer for a lifeline.

Stay classy ✌️

Your Finimize Analyst team