In The Spotlight
In The Spotlight
In The Spotlight
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Over the past 18 months, the Fed has focused predominantly on one problem: inflation. Recent financial system stress, however, partly due to the most rapid hiking cycle on record, has altered policy priorities, in our view. As such, we believe that financial stability may be the near-term focus, and market pricing reflects this. The market implied terminal rate has fallen as many investors have grappled with how much higher the Fed can hike without any further stress.
Global equities rose last week amidst 25 bps rate hikes by the Fed and BoE. The S&P 500 was up nearly 3% on the week prior to Fed Chair Powell’s press conference but gave up gains in the hours that ensued, despite commentary suggesting that the end of the hiking cycle may be in sight. Ultimately, the index ended last week up 1.41% despite the ninth Fed hike in a year. In Europe, the STOXX 600 and FTSE 100 ended last week up 0.96% and 1.05%, respectively. Read More
Oil prices rose last week, rebounding from 15-month lows the week prior, as stability in the European banking sector assuaged concerns of a crisis. WTI and Brent crude ultimately closed higher at $69.26 and $74.99/bbl, respectively, despite crude inventories rising to a 22-month high. Gold prices extended their rally to price levels not seen since March ’22, ultimately closing the week higher at $2001.70/troy oz. Read More
Global sovereign yields remained volatile last week, rising mid-week as reports hinted at potential legislation to expand the $250k FDIC insurance ceiling. Yields quickly fell later in the week, however, following comments from Secretary of the Treasury, Janet Yellen, indicating that broad insurance coverage was not an option being considered. Ultimately the 2-Year and 10-Year US Treasury yields closed last week lower at 3.78% and 3.38%, respectively. In Europe, the 10-Year German Bund yield followed a similar path, closing lower at 2.13%. Read More
The US dollar fell against a basket of major currencies last week as market participants perceived Fed Chair Powell’s comments as dovish, despite a move higher in the Fed’s policy rate. As a result, the US dollar index ended last week down –0.88%. In Europe, the euro and pound sterling each slightly strengthened against the greenback, ending last week at $1.0760 and $1.2227, respectively. Read More
The FOMC raised the target range for the federal funds rate by 25 bps to 4.75—5.00% in what markets interpreted to be a “dovish” hike. The FOMC removed the reference to “ongoing” hikes in its statement and instead wrote that, “additional policy firming may be appropriate.” Powell stated in his press conference that credit tightening, in part due to recent financial system stress, may have had similar impacts to a rate hike. This logic may have informed the FOMC’s expectation of a 5.125% terminal rate and zero rate cuts through year-end. Elsewhere, several central banks in the Euro area raised rates last week to tackle inflation despite banking-sector stress. The Swiss National Bank hiked by 50 bps, while Norges Bank and the Bank of England (BoE) implemented more modest 25 bps increases. Despite UK CPI printing higher than consensus expectations last week, the BoE noted that sequential wage pressures were weakening, signaling that the end of the hiking cycle may be in sight, in our view. Read More
Core CPI in the UK increased to 6.2% YoY and headline CPI increased to 10.4% YoY in February, both above consensus and the BoE's expectations. This resurgence was driven by an acceleration in services pressures, specifically in restaurants/hospitality. Despite the upside surprises, we expect that both core and headline inflation are past their respective peaks but look for inflation in the UK to remain elevated throughout the first half of 2023 as wage growth remains elevated. Read More
Initial jobless claims edged down by -1k to 191k in the week ending March 18th, against consensus expectations for an increase. We believe seasonal adjustment issues have exerted a downward pressure on initial claims over the past few months, but nonetheless, the labor market remains tight. We anticipate annual revisions to the seasonal factors at the start of April may eliminate seasonal distortions. Read More
For style performance, Large, Mid, and Small refer to the Russell 1000, Russell Midcap, and Russell 2000 indices, respectively. Value refers to companies with lower price-to-book ratios and lower expected growth values, and Growth refers to higher price-to-book ratios and higher forecasted growth values. Government, Corporate, and High Yield refer to the US Treasury index, the US Corporate Credit index, and the US High Yield index, respectively. Short, Intermediate, and Long refer to the Short, Intermediate, and Long segments of their respective curves. Quality returns refers to the credit quality of asset classes ranging from Government, highest quality, to High Yield, lowest quality.
CB Consumer Confidence
(Cons: 101.0, Prior: 102.9)
Pending Home Sales MoM
(Cons: 1.0%, Prior: 8.1%)
BoE Inflation Letter
US Core PCE YoY
(Cons: 4.3%, Prior: 4.7%)
Euro Area CPI YoY
(Cons: 7.4%, Prior: 8.5%)
Euro Area Unemployment
(Cons: 6.7%, Prior: 6.7%)
“Euro PMI” refers to the Markit Eurozone Composite Purchasing Managers’ Index. “Cons. Conf.” refers to US Consumer Confidence. “GE IFO Business” refers to the German Ifo Business Climate Survey. “New Home Sales” refers to US New Home Sales (MoM). “Dur. Gd. Ord.” refers to US Durable Goods Orders. “UK GDP” refers to the QoQ estimate of the United Kingdom’s Gross Domestic Product for Q3. “Euro M3” refers to the YoY change in the Eurozone’s M3 Money Stock. “US GDP” refers to the estimate of US Gross Domestic Product for Q3. “Pers. Cons.” refers to US Personal Consumption. “UMich Cons. Sent.” refers to the University of Michigan Consumer Sentiment Index. “Japan Core-Core CPI” refers to Japan’s Consumer Price Index (ex- Food, Energy YoY).
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