Weekly market recap

• On Saturday, U.S. and British forces launched strikes on more than a dozen Houthi targets in Yemen, as part of ongoing efforts against the Iran-linked group responsible for regional shipping attacks. Despite repeated strikes, Houthi assaults continue, disrupting global trade and raising shipping costs. The recent strikes hit 18 Houthi locations, including weapon and missile storage sites, air defence systems, radars, and a helicopter. U.S. Defense Secretary Lloyd Austin stressed that the aim was to disrupt and weaken the Iranian-backed Houthi militia, warning of repercussions if attacks persist. Several countries, including Australia, Bahrain, Canada, Denmark, the Netherlands, and New Zealand, supported the military action. In response, Houthi-affiliated Al Masirah TV portrayed the strikes as hindering Yemen's aid efforts for Palestinians in Gaza. The Houthis have claimed recent attacks on cargo ships, a U.S. destroyer, and Israel's port and resort city, disrupting the Suez Canal route and raising concerns about environmental damage and maritime safety. The European Union and the United States have initiated naval missions to protect Red Sea navigation from Houthi threats.
• Ukrainian President Volodymyr Zelenskiy warned of a potential Russian offensive in late May or summer, stressing Kyiv's readiness with its own battlefield plan. Zelenskiy called for unity with Western allies, highlighting the need for timely approval of military aid by U.S. Congress. He revealed that 31,000 Ukrainian soldiers were killed since February 2022 and called for stronger Western support. Despite Russia’s recent successes, Zelenskiy remains hopeful, especially about receiving long-range missiles. While Kyiv has a clear strategy to combat Russian forces, details were not disclosed. Zelenskiy emphasised troop rotations and improving reserve forces. He is aiming for a spring summit in Switzerland to discuss peace initiatives with allies, intending to present a peace plan to Russia later. The number of wounded soldiers was not disclosed, citing concerns about support for Russian war planners. The estimate of Ukrainian military losses was rejected by the Russian foreign ministry.
• Germany legalised cannabis cultivation and possession for private use through a law passed by Chancellor Olaf Scholz's coalition. Individuals can now grow up to three plants and possess up to 25 grams of cannabis. Larger non-commercial cultivation is permitted for cannabis clubs with up to 500 adult members. Health Minister Karl Lauterbach cited the containment of the black market and the protection of young people as goals. However, opposition members criticised the move, arguing it could encourage drug use. Lauterbach responded that legalisation acknowledges the reality of widespread cannabis use and aims to mitigate associated risks, given the drug's increased potency and impurities. Germany joins eight other countries in legalising recreational cannabis, while medical use is permitted in many other places. Concerns persist about the law's effectiveness in combating illegal drug trade.

What to watch out for this week

• In the United States, investor attention is expected to return to a busy economic calendar, accompanied by numerous speeches from Federal Reserve policymakers. Key data points to watch include the PCE price indices, personal income and outlays, the ISM Manufacturing PMI, and durable goods orders. Forecasts suggest a 0.3% rise in PCE prices for January, slightly higher than the 0.2% increase in December, with core prices expected to accelerate by 0.4%. Additionally, expectations indicate a 0.3% increase in consumer spending and a 0.5% rise in income. Moreover, the ISM survey is likely to signal a continued contraction in the manufacturing sector throughout February, while durable goods orders are predicted to have declined by 4.5% in January after remaining unchanged in December. Investors will also closely monitor the second estimate of fourth-quarter GDP data, new and pending home sales, Case-Shiller home prices, Chicago PMI, Dallas Fed Manufacturing Index, and advance estimates of wholesale sales and the goods trade balance.
• In Europe, significant reports on inflation and employment are due to be published, covering the Euro Area and key countries such as Germany, France, Italy, and Spain. The annual inflation rate in the Euro Area is expected to decrease to 2.5% in February, with the core rate anticipated to drop to 2.9%, marking the lowest figure since February 2022. In Germany, the consumer climate indicator from GfK is projected to rebound from an 11-month low, while retail sales are expected to recover following two consecutive months of decline. Spain's manufacturing sector is forecasted to stagnate, while Italy is expected to witness a slight contraction amidst an ongoing 11-month period of decline. Turkey and Switzerland are among the European nations continuing to update their Q4 GDP data. Additionally, upcoming data releases include the Euro Area's business survey, Italy's 2023 GDP and government budget data, and Switzerland's KOF leading indicator and retail sales figures.
• In the United Kingdom, attention will focus on the Bank of England's monetary indicators and Nationwide housing prices, as well as the CBI gauge for distributive trades and final manufacturing PMI.