The month of March has seen some wild swings in market sentiment and FED expectations. Get my take in this week’s Market Round-Up!
WEEKLY SOUND BITES:
US indexes posted solid gains in a relatively quiet week for economic data releases and financial news. The week also brought the end of Q1 2023. The Tech-Heavy Nasdaq jumped more than 16% for the quarter (best showing since 2020s), while the S&P rose about 7%. However, the narrowly focused DOW was only modestly higher. Bank stocks, which have declined sharply since the banking crisis of Silicon Valley Bank (SVB) and Signature Bank also advanced, with the widely followed KBW Bank Index easily outpacing the broad market’s gains. Over the course of March, expectations about Fed Policy shifted from one extreme to another, from continuous rate hikes to pausing very soon. All due to the issues experienced with the failure of SVB and Signature Bank and the resultant stress generated in the banking sector.
The market received some positive news on inflation, with the U.S. core (excluding food and energy) personal consumption expenditure (PCE) price index for February coming in at 4.6% versus consensus expectations for 4.7%. The core PCE is the Federal Reserve’s preferred measure of inflation. While the February 2023 reading was below the recent high of 5.4% reached in February 2022, it is still well in excess of the Fed’s 2% long-term inflation target. The Commerce Department released its final estimate of fourth-quarter 2022 gross domestic (GDP) product growth, which was revised slightly lower to 2.6%.
U.S. Treasury yields increased but took a breather from the worst of the elevated volatility that had dominated the market for U.S. government debt since SVB’s sudden collapse triggered worries that banking system turmoil could lead to recession. Currently it is almost a coin toss on raising rates at the next FED Meeting (May 2nd) by 25 bps or taking pause.
In Europe, annual consumer price growth in the euro area slowed to 6.9% in March from 8.5% in February as energy costs subsided. The result was below the consensus forecast of 7.1% in a FactSet poll of economists. However, the core rate that excludes volatile food and energy prices ticked up to 5.7% from 5.6% in February. Separately, the unemployment rate in February held steady at 6.6%. In the U.K. we see revised official data showing they avoided a recession last year, helped by government subsidies for energy bills.
And in Japan they announced plans to restrict exports of 23 types of leading-edge semiconductor manufacturing equipment, saying equipment makers will need to seek export permission for all regions. These restrictions will come into force in July.
In China, we see their official manufacturing Purchasing Managers’ Index (PMI) rose to a better-than-expected 51.9 in March, while the nonmanufacturing PMI rose to 58.2, the highest reading since May 2011. Index readings above 50 indicate expansion from the previous month. Meanwhile, industrial profits fell 22.9% in the first two months of 2023 from a year earlier, following a 4% decline for all of 2022.
Enjoy This Week’s Round-Up
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