Hey everyone, I hope you all had a great Holiday season as we wrap up a very ugly year in the financial markets. We have gotten off to a good start for 2023, but where we go from here will depend upon a number of factors. Let’s review them in our first Weekly Round-up for 2023.
WEEKLY SOUND BITES:
And end of year Friday rally following an encouraging jobs report left the major indexes with a gain to start the year in 2023. The S&P 500 also continued to move within a relatively tight band compared with most of 2022, with the index staying between 3,764 and 3,906 since December 16. The market was closed on Monday in observance of New Year’s Day. The week brought several closely watched economic reports, and the market’s reactions seemed to signal investors’ preference for slowing growth and inflation over a robust economy—a trade-off Federal Reserve officials have made clear that they are ready to accept.
The S&P 500 and Nasdaq 100 both fell over 1% on Thursday morning, after payroll processing firm ADP’s tally of jobs in the private sector showed an increase of 235,000 in December, well above expectations for around 150,000 and August’s recent low of 132,000. Weekly initial jobless claims also fell unexpectedly to 204,000, their lowest level since September. However, slowing wage growth help move price action higher on Friday in the continuing theme of good economic news is bad news for price action and vice versa. Friday also brought news that the Institute for Supply Management’s index of services sector activity fell to 49.6, well below consensus and into contraction territory (below 50) for the first time since May 2020, as new orders slowed sharply.
The news of a slowdown in the services sector appeared to send both short- and longer-term U.S. Treasury yields sharply lower on Friday morning, leaving the yield on the 10-year note down over 30 basis points (a basis point is 0.01 percentage point) for the week.
In Europe, a decline in energy price increases helped push eurozone inflation below 10% for the first time in two months. Consumer prices in December rose 9.2% year over year, below estimates of 9.7%. Even so, the core inflation—which excludes volatile food, energy, alcohol, and tobacco prices—quickened to 5.2% from 5.0% in November. A final reading of S&P Global’s composite PMI signaled that a eurozone recession this year might be shallower than expected. The index was revised higher to 49.3 from a first estimate of 48.8. While the PMI was still below 50, indicating a contraction in activity, the index rose for a second consecutive month.
Meanwhile, BoJ conducted unscheduled bond-buying operations to defend its newly increased 0.50% cap on the 10-year Japanese government bond yield, which finished the week at that level, up from 0.42% at the end of the previous week. Pressure on the cap reflected investors’ expectations that the BoJ would increasingly pivot away from its ultra-loose monetary policy stance.
And in China, economic news, the official Purchasing Managers’ Index (PMI) data for manufacturing and non-manufacturing fell in December. Overall, the composite PMI fell to 42.6 from 47.1 in November, marking the biggest decline since February 2020, before the coronavirus outbreak. The drop-in economic activity was largely attributed to the surge in infections after China abandoned its zero-COVID approach in early December.
Enjoy This Week’s Round-Up;
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