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WEEKLY ROUND-UP Thru Mar 10th 2023; Volatility Is Back!

Folks this past week saw a number of adverse events drive markets much lower. From the FEDs to Silican Valley Bank failure it was a fast moving week. Get my take in this week’s round-up.


US indexes pulled back sharply over the week, as investors absorbed more tough talk from Fed Chair Jerome “Power Ranger Boom Boom” Powell amid signs that the FEDs still have much more work to do in cooling inflation and the hot labor market. And if this was not enough, we saw SVB Financial taken over by the FDIC as the second largest bank failure in US History with investors worried about potential contagion effects.

Investors appeared especially uncertain how to react to Friday’s Payrolls report, which showed an increase of 311,000 nonfarm jobs in February, well above consensus expectations of around 200,000 while the unemployment rate rose from a January five-decade low of 3.4% to 3.6%.

Speculation that SVB’s troubles might cause the Fed to dial back its interest rate hikes to prevent further stresses in the financial system appeared to spur a plunge in short-term Treasury yields. As markets opened Friday, the two-year yield plummeted from 4.9% to just above 4.6%, while futures markets began pricing in a 25-bps hike at the next Fed meeting instead of a 50-bps hike. By the end of the day, futures were also pricing in a roughly 23% chance that the federal funds rate would end the year at its current level or even lower by the end of year. Friday’s flight to safety left the yield on the benchmark 10-year U.S. Treasury note down roughly 27 bps for the week. The risk-off environment caused credit spreads to widen, however, especially in the high yield corporate market.

Shares in Europe fell along with global markets amid worries about stress in the banking system and the potential effects of a prolonged period of elevated interest rates. The UK economy rebounded by more than expected in January, driven by growth in the services sector, according to official statistics. GDP rose 0.3% sequentially, after contracting in December, official data showed.

Japan’s central bank’s continued commitment to its ultra-loose stance sent the yield on the 10-year Japanese government bond (JGB) sharply lower—it finished the week at 0.42%, from 0.50% at the end of the previous week. Meanwhile, Japan’s economic growth over the last three months of 2022 was downgraded to an annualized 0.1% quarter on quarter from a preliminary estimate of a 0.6% expansion.

Chinese equities retreated as signs of weakening demand and a lower-than-expected 2023 growth target unveiled by Beijing tempered concerns about the country’s outlook. Beijing set an economic growth target of around 5% this year at the National People Congress (NPC), China’s parliament, which started Sunday, March 5, and ends Monday, March 13. China reported that its consumer price index rose 1% in February from a year earlier. Core inflation rose 0.6% in February from 1% in January, while producer prices also fell more than expected due to lower commodity costs. Chinese exports and imports extended declines in the first two months of the year as the global economic slowdown hit trade activity. Exports fell 6.8% in January and February from the prior-year period

Enjoy this week’s Round-Up

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