Hey Everyone, what goes up will always, and eventually come back down, and maybe not from its starting point but it will take back gains especially if those gains were fast and furious. The big question on most investor’s minds centers around where will the FEDs take the interest rates? A lot of guessing will go into determining the end Terminal Rates. And most of that guessing will stem from Economic data that gives us more insight into the Consumer spending. Get my take on the current state of markets below in this week’s Market Round-Up.
WEEKLY BITES:
US indexes ended lower after a cascade of upside inflation and growth surprises pushed the S&P 500 to its worst weekly loss since early December. At Friday’s close, the index had surrendered roughly 35% of the rally that began in October but remained up 3.40% YTD. The declines pushed the narrowly focused Dow into negative territory for 2023, however. An interesting statistic shows that META, AMZN, AAPL, GOOGL, AMZN, NVDA, NFLX & TSLA account for 80% of the YTD gains in the S&P and the other 492 companies account for only 20% of the gains.
On Friday, we saw the PCE (personal consumption expenditures) price index jump 0.6% in January, above expectations of an increase of 0.4% and its biggest rise since August. December’s figure was also revised higher, pushing the year-over-year increase—widely considered to be the Federal Reserve’s preferred inflation gauge—from 4.6% to 4.7%, the first pickup in pace since September. Consensus expectations had been for another decline to around 4.3%. Along similar lines, personal spending rose a solid 1.8% in January, the biggest increase in nearly two years and well above expectations. The University of Michigan’s gauge of consumer expectations in February was revised higher to its best level in over a year, and both initial and continuing jobless claims fell back and came in below consensus. In a sign of solid household balance sheets, sales of new single-family homes reached their highest level since March 2022. The CPI has fallen from 9% largely due to declines in durable goods but the services (accounts for 61% of the CPI) were climbing at a7.6% rate thru Jan ’23.
Futures markets began pricing in a roughly 27% chance of a half-point (0.50%) hike in the federal funds target rate at the upcoming March policy meeting, with approximately a 38% chance that the so-called terminal rate would reach a target range of 5.50% to 5.75% or higher. Likewise, expectations that the Fed would begin cutting rates in the fall dwindled considerably. The growth and inflation data sparked a sell-off in U.S. Treasuries, with the yield on the benchmark 10-year U.S. Treasury note nearing 4.00% for the first time since mid-November. The Fed Fund Futures is pricing in a terminal rate of 5.4%.
Inflation in the eurozone eased in January to an annual rate of 8.6% from 9.2% the previous month. However, underlying price pressures continued to increase, with the core inflation measure—which excludes fuel and food prices—accelerating to 5.3% from the 5.2% registered in December. A preliminary reading of the composite Purchasing Managers’ Index (PMI), which measures the combined output of the services and manufacturing sectors, rose to 52.3 in February from 50.3 in January.
In Japan, Kazuo Ueda, who is set to become BoJ Governor in April, adopted a largely dovish tone, emphasizing monetary policy continuity but also acknowledging that current policy had side effects. He said that it will take time for the BoJ to achieve its 2% inflation target and it is appropriate to continue with monetary easing.
Chinese stocks advanced after three weeks of losses as hopes for stepped-up regulatory support offset concerns about elevated U.S. tensions. Signs of economic growth appeared to dampen the need to loosen policy after Beijing’s removal of pandemic restrictions in December resulted in a batch of better-than-expected indicators. Many analysts forecast the central bank will continue its accommodative stance to support the economy amid a sluggish property market, tumbling exports, and fragile consumer confidence.
Enjoy this week’s round-up
Don’t Be A Rat Brain Trader – Be the Red Stripe Zebra !!
Trade Smart !
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