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WEEKLY ROUND-UP Thru May 5th 2023; Who will win – The Feds or Bonds?

Hey folks, interesting week where we say the US FEDs indicating a rate pause yet there is still an underlying issue in Regional Banks.  Get my take on the current state of the financial markets in this week’s market round-up.

Weekly Sound Bites:

  • US indexes ended the week lower on comments from Fed Chair “Boom Boom” Powell that suggested a pivot to cutting rates might not occur as quickly as the market had hoped. Uneasiness surrounding the need to raise the U.S. debt ceiling may also have weighed on sentiment, as U.S. Treasury Secretary Janet Yellen notified congressional leaders in a letter that the agency might not be able to meet its debt obligations “potentially as early as June 1.” Over the prior weekend, regulators took control of First Republic Bank, which, like Silicon Valley Bank and Signature Bank, had struggled with large deposit outflows. JPMorgan Chase acquired most of the failed bank’s assets, and deposits not covered by federal insurance did not suffer losses. As a result, the regional banks subsector in the S&P 500 experienced significant volatility during the week, reflecting concerns about the potential for additional bank failures and the credit pressures that could arise if the economy slows and unemployment increases.


  • Data from the U.S. Department of Labor showed that the number of job openings shrank for a third consecutive month in March, falling to 9.59 million from 9.97 million. The decline was most pronounced in small business that have up to 49 employees. Still, with 1.6 job openings for every unemployed person, the labor market remains tight. The nonfarm payrolls report that came out on Friday showing strength in the labor market, with the economy adding 253,000 new jobs in April—higher than the consensus estimate of 179,000 and the 165,000 job gains recorded in March. Average hourly earnings increased 0.5% month over month, compared with a sequential uptick of 0.3% in March.


  • As expected, on May 3, the Fed increased interest rates by 25 basis points, taking the benchmark fed funds rate to a target range of 5.00% to 5.25%. During the press conference, Fed Chair Powell strongly hinted that the fed funds rate might be near the peak level for this cycle. Nevertheless, Powell also kept the option for further monetary tightening on the table, stating that “a decision to pause was not made today.” Rate cuts, according to Powell, “would not be appropriate” in a world where inflation does not come down quickly.
  • The ECB raised its key deposit rate by a quarter of a percentage point to 3.25%, as expected, after three increases of 0.5% this year. The bank also said it would halt its program of reinvesting money from its bond purchases by July. ECB President Christine Lagarde said later that interest rates would rise to “sufficiently restrictive levels” until inflation was reduced to the 2% target.  Inflation in the eurozone accelerated in April to 7.0% year over year from the 6.9% registered in March, official data showed. However, the core rate excluding food, energy, alcohol, and tobacco—a measure of underlying pricing pressures—unexpectedly ticked down from a record level to 5.6%. Separately, the labor market appeared to tighten, with the jobless rate falling to 6.5%.


  • Japan’s stock markets were relatively quite as it rose over the first two days of the week but closed for the rest of the period due to the Golden Week national holidays. The Japanese currency was supported by safe-haven demand amid U.S. recession fears and ongoing concerns about the health of certain U.S. regional banks.


  • Chinese equities ended mixed after a holiday-shortened week as surprisingly weak manufacturing data tempered sentiment. China’s official manufacturing purchasing managers’ index (PMI) fell to 49.2 in April from March’s 51.9, marking a return to contraction for the first time since December after Beijing abandoned its zero-COVID policy. The nonmanufacturing PMI also softened in April but remained above 50, the level separating growth from contraction.

Enjoy this week’s market round-up.

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