What does this mean?

The US’s hotter-than-expected inflation was unwelcome news for investors, deflating their hopes that the central bank might begin to cut interest rates as early as March. Consumer prices rose by 3.4% in December from a year ago – a clear acceleration from November’s 3.1% pace, as Americans paid more for housing and driving. Core inflation – the measure that strips out volatile food and energy items to give a better sense of underlying price pressures – eased slightly, to 3.9% in December from 4% the month before, but that was still more than the 3.8% economists were hoping for.

Cryptocurrency fans celebrated some long-awaited news on Wednesday: US regulators approved the first ETFs that invest directly in bitcoin. The funds, which firms like BlackRock, Fidelity, Invesco, Grayscale, and WisdomTree have been trying to get authorised for years, allow investors to add bitcoin to their portfolios by simply buying shares, as they would a stock. The new funds debuted Thursday, with $4.6 billion of the new ETFs changing hands on day one.

The eurozone economy might have stumbled into a recession in the second half of last year, but its job market appears to be walking a different path altogether. The unemployment rate in the bloc dropped back to its record low of 6.4% in November. This disconnect just underscores the reason why the European Central Bank isn’t talking about cutting interest rates anytime soon. Despite the mild economic downturn Europe is facing, employers are having a hard time hiring, and that’s forcing them to offer higher wages – which could potentially send inflation back up again.

That strapping job market, meanwhile, might explain why economic confidence in the eurozone keeps getting better. The sentiment indicator – an aggregate measure of business and consumer confidence published by the European Commission – rose to 96.4 last month, hitting its highest level since May and surpassing the forecasts of all economists. The jump was driven by increases across all sub-indicators (industry, services, and consumer). This is encouraging, even if the reading is still below its long-term average of 100.

The “Fed model” – a tool that compares stock market earnings yields with long-term government bond yields – is flashing green for Chinese stocks. Right now, the earnings yield of the CSI 300 index is 5.7 percentage points higher than the yield on 10-year Chinese government bonds, a gap that’s wider than it’s been in two decades. The model has historically been a reliable predictor of future returns: in the past 20 years, whenever the stock-bond yield gap has exceeded 5.5 percentage points, stocks have risen in the following 12 months.

The Nikkei 225 index rose 6.6% last week to hit a level not seen since February 1990 – Japan’s bubble economy era. Investor optimism about Japanese shares is strong, after the index gained 28% in 2023 to mark its best run in a decade. That surge was driven by solid company earnings, corporate governance reforms championed by the Tokyo Stock Exchange, the resurgence of some long-awaited inflation in Japan, and an extended period of weakness in the yen, which helped boost exporters’ earnings.