Strong start to 2023 folks but now we have the all important Fed Meeting this coming Wed where we will get the rate hike where most feel it will be 25 bps but the key will be the language the “Boom Boom” Powell lays on the press for the remainder of the year. His words will be dissected thoroughly to gage just how aggressive he will be with monetary policy. Get my take in this week’s Round-Up.
Major US indexes resumed their winning streak, as investors appeared to welcome some hopeful signals that the economy might either enter a mild recession or none at all in 2023. The typically defensive consumer staples, health care, and utilities segments lagged. Relatedly, value stocks underperformed growth shares. Thus far in January it has been a risk on rally with Tech and Banks rising the most while defensive sectors like Staples, Healthcare and Utilities down for the month.
The week’s inflation data were arguably a little less encouraging, however. On Monday, S&P Global reported that its composite gauge of current manufacturing and services sector activity climbed to 46.6, up from 45.0 in December (readings below 50.0 indicate contraction). While a positive surprise, the report also showed that input prices increased in January, breaking a seven-month streak of declines. The Commerce Department reported on Thursday that the U.S. economy expanded at an annualized rate of 2.9% in the quarter, beating consensus estimates of around 2.6%. The Fed’s preferred inflation gauge, the core (less food and energy) personal consumption expenditures (PCE) price index rose 4.4% over the year ended in December, still above the Fed’s 2% long-term inflation target, but well below its 5.4% peak in February 2022 and the slowest pace in 14 months. Friday also brought news that consumer spending decreased 0.2% in December, a tick more than expected, providing further evidence that Americans were balking at paying higher prices. The gains came despite another arguably disappointing week of earnings reports, with companies representing roughly 20% of the S&P 500 Index market capitalization reporting results.
The Feds are expected to raise the rates this coming week by 25 bps to 4.5% – 4.75% with another 25 bps in March raising the final terminal rate to 4.75% to 5%.
In Europe the ECB President Christine “Queen Bee” Lagarde, and fellow Governing Council members repeated their recent calls for “significant” rate increases in February and March. Business activity in the eurozone unexpectedly stabilized in January after contracting for six months, raising hopes that the bloc might avoid a recession. An early reading of the composite Purchasing Managers’ Index (PMI), which measures manufacturing and services output, rose to 50.2 from 49.3 in December 2022, according to S&P Global. PMI readings greater than 50 indicate expansion. Consumer confidence in the eurozone strengthened in January, according to the European Commission. Meanwhile, in the UK the S&P Global/CIPS flash composite output index came in at 47.8—down from 49.0 in December.
In Japan, the Summary of Opinions at the BoJ’s January 17–18 Monetary Policy Meeting concluded that it is necessary for the central bank to take some time to examine the effects that the modification of yield curve control decided at its December meeting has on market functioning. Japan’s private sector activity returned to growth in January.
In China, shipping cancellations at China’s largest ports have increased amid weaker overseas demand. Cancellation rates from Asia are estimated to reach 31% over the coming weeks, compared with 23% last year and 16% in 2021.
Enjoy This Week’s Round-Up;
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