Key Takeaways
- US Inflation Eases: The Consumer Price Index (CPI) rose 0.2% month-over-month in January, below estimates of 0.3%. Year-over-year, CPI cooled to 2.4% from 2.7% in December.
- Real Earnings Jump: Real average weekly earnings surged 1.9% year-over-year, a significant increase from the 1.1% rise in the previous month, as wage growth outpaced inflation.
- European Security in Focus: German Chancellor Friedrich Merz called for a stronger, more self-supporting European pillar within NATO and initiated confidential talks with France on European nuclear deterrence.
- Alibaba Faces Pentagon Scrutiny: The U.S. is expected to add Alibaba (BABA) to a Pentagon list of companies allegedly aiding the Chinese military.
US Inflation and Economic Data
Inflationary pressures in the United States showed signs of moderation in January, with the Consumer Price Index (CPI) rising less than expected. The headline CPI increased by 0.2% on a monthly basis, against an estimated 0.3%, bringing the annual rate down to 2.4% from 2.7% in December. This marks the lowest annual inflation rate since May 2025.
The Core CPI, which excludes volatile food and energy prices, was in line with expectations, rising 0.3% month-over-month. The annual Core CPI rate eased slightly to 2.5% from 2.6%.
In a positive development for consumers, real average weekly earnings saw a significant year-over-year increase of 1.9%, up from 1.1% previously. Real average hourly earnings also ticked up to 1.2% from 1.1%. This suggests that wage growth is now outpacing the rate of inflation, increasing the purchasing power of American workers.
European Geopolitics and Defense
German Chancellor Friedrich Merz delivered a significant foreign policy speech, emphasizing the need for a stronger and more self-reliant Europe in the face of global challenges. Merz stated, "We are not writing off NATO, we are building a strong, self-supporting European pillar." He also revealed that he has begun confidential discussions with French President Emmanuel Macron regarding European nuclear deterrence.
Merz acknowledged a "gap" that has opened between Europe and the U.S. and called for a new transatlantic partnership to rebuild trust. He stressed that while Germany is strengthening its own defense capabilities and intelligence services, a united front is essential, noting, "even the United States is not powerful enough to go it alone."
These comments come as the UK announced plans to spend over £400 million on long-range weapons this fiscal year, and Italian Prime Minister Giorgia Meloni is reportedly planning €3 billion in energy aid to help consumers with bills.
Corporate and Market Movers
In company-specific news, Alibaba (BABA) is reportedly set to be added to a Pentagon list of firms with alleged ties to the Chinese military. This development could have significant implications for the e-commerce giant.
In pre-market trading, U.S. stock futures were pointing to a lower open, with the S&P 500 futures down 0.3% and Nasdaq 100 futures off by 0.4%. Several major tech stocks were in the red, including Apple (AAPL), Microsoft (MSFT), Alphabet (GOOGL), Meta Platforms (META), Amazon (AMZN), and Tesla (TSLA).
On the positive side, Rivian (RIVN) shares soared 20% in pre-market trading after reporting strong fourth-quarter results and guiding for a significant increase in vehicle deliveries for the current year. Roku (ROKU) also saw its stock jump 15% after its earnings per share and revenue surpassed Wall Street expectations.
Central Bank Commentary
Bank of England Chief Economist Huw Pill commented on the UK's economic situation, stating that he does not see the labor market as being on the cusp of a non-linear downturn. He also suggested that holding interest rates at their current level should be sufficient to bring inflation under control, while noting that rates are currently "a little bit too low." He believes underlying inflation in the UK is settling around 2.5%, which is still above the central bank's 2% target.
Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications.