Hey Everyone, the end of 2022 is finally drawing to a close and what a year it has been. The only near term question now is will a year-end rally hit the markets or, will price action continue the downward spiral we’ve seen over the last 2 consecutive weeks. Get my take in this Weekly Round-Up.
WEEKLY SOUND BITES:
Intensified fears over rising interest rates pushed the S&P 500 Index lower for a second consecutive week and to levels last seen in early November. Nearly every sector within the index recorded sharp losses except for energy shares. Two highly anticipated announcements during the week appeared to send sentiment in opposite directions—much higher at the start of the week and sharply lower at its end. The first was the release of the consumer price index (CPI) before trading began on Tuesday. Many investors assumed that the good news on inflation would have notable impact on Fed policy, but the release of the December policy meeting statement on Wednesday afternoon, followed by Fed Chair Jerome Powell’s press conference, sent stocks sharply lower.
Consumer price index (CPI) data showed that headline inflation rose only 0.1% in November from October, bringing the year-over-year gain to 7.1%. That is still well above the Federal Reserve’s long-term 2% inflation target, but the lowest level since December 2021. Core (less food and energy) inflation rose 0.2%, a tick below consensus expectations and largely driven by housing costs, which are already showing signs of cooling. Markets loved the CPI Data release. But the release of the December policy meeting statement by the FEDs, followed by Fed Chair Jerome “Power Ranger Boom Boom” Powell’s press conference, sent stocks sharply lower. As widely expected, the Fed slowed its pace of rate increases by announcing a 50-bps increase in the federal funds target rate—the four previous meetings each brought rate increases of 75 bps—the official statement reiterated that ongoing rate increases are likely. Major stock indexes tumbled over 1% within seconds of the release, perhaps as investors flipped to the quarterly summary of individual policymakers’ economic projections, which showed that the median projection for the federal funds rate in 2023 rose to 5.1%, well above the 4.6% officials had anticipated in September. The other notable surprise of the week may have been Thursday’s data on retail sales, which dropped 0.6% in November, defying expectations for a small increase and indicating a disappointing post-Thanksgiving “Black Friday” and “Cyber Monday” sales season. Sales in the previous two months were also revised lower.
U.S. Treasury yields decreased, with a more pronounced move in shorter-maturity notes. The Fed’s main policy rate target currently sits between 4.25% and 4.5%, up from almost zero at the start of this year.
The ECB raised its key interest rate by 50 bps to 2%. Although the increase was less than the 75 bps hike implemented at the two previous meetings, ECB President Christine “Queen Bee” Lagarde said rates “will still have to rise significantly at a steady pace to reach levels that are sufficiently restrictive” to bring inflation back down to the central bank’s 2% target. The ECB also said it plans to shrink the portfolio accumulated as part of its Asset Purchase Program by an average of EUR 15 billion per month, starting next March and running through the end of the second quarter. And the downturn in eurozone business activity continued for a sixth consecutive month in December with the PMI ticking up to 48.8—a reading still in contractionary territory (below 50) but exceeded a consensus forecast for 48.0 in a Reuters survey of economists. The BoE hiked its key interest rate by 50 bps—the ninth consecutive increase—to a 14-year high of 3.5%. UK inflation fell from a 41-year high to 10.7% in November as motor fuel prices weakened. Official data showed that the economy shrank 0.3% sequentially in the three months through October.
In Japan, December PMI data showed that Japan’s services sector expanded while manufacturing contracted.
In China, a trio of key economic indicators for November came in weaker than expected as pandemic-related disruptions weighed on activity. Industrial production rose by 2.2% in November from a year earlier, marking the softest growth since May, while retail sales declined by 5.9%. And the PBOC injected almost $100 B US more liquidity into their banking system to maintain liquidity.
Enjoy this Week’s Round Up;
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