Weekly Analysis

Macro Bullets – 27/02/23

Dollar Index (DXY) surges on higher than expected U.S. Personal Consumer expenditure (PCE) figures!

Indices

Futures

Forex

– Stocks moved lower on Friday as equity markets are finally realising that further Fed involvement and subsequent rate hikes will be realised. The S&P 500 Index ($SPX) on Friday closed down -1.05%, the Dow Jones Industrials Index ($DOWI) closed down -1.02%, and the Nasdaq 100 Index ($IUXX) closed down -1.73%.
– Retail performance wanes as Walmart shares fell after issuing a cautious view on profit guidance. Home Depot was also down 7% earlier in the week, despite earnings beating estimates sales came in short.
– Friday saw the release of the January U.S. Personal Consumer Expenditures price index (PCE) figure. This has long been the Fed’s preferred measure of inflation, the fact it showed an acceleration of 0.6% in inflation meant the Dollar Index (DXY) surged to 7-week highs at 105.36.
– The U.S. existing home sales figures were released and showed a fall of 0.7% in January. This was the twelfth straight monthly drop and takes it to its lowest level in more than 12 years. It is worth mentioning that as the pace of the decline slowed slightly which raised cautious optimism that the housing market slump could be nearing its bottom.
– Treasury Secretary, Janet Yellen, flagged Russia ending the war as “the most important thing” for the global economy. China have also been pushing a proposal to end the fighting which was criticised by the U.S. National security advisor.

– A Bloomberg index tracking high grade government and corporate bonds rose as much as 4% last month. (chart above) However, that record breaking rally has disappeared after a red hot US labour market and better than expected macro data in Europe came earlier in the month.
– Figures released on Friday showed the German economy contracted by 0.4% during the last quarter of 2022 as inflation and the energy crisis took their toll on household consumption and investment. As a result, the German Stock index (DAX 30) fell 1.72% in its worst day this calendar year.
– European shares posted their biggest weekly fall of 2023 as the fear of rate hikes returns. The STOXX600 was fell 1%, reversing early gains on Friday, and down 1.4% for the week.

– In Brazil, President Lula publicly demonstrated his dissatisfaction with the Central Bank’s decision to maintain the basic interest rate at 13.75% (chart below). Noting that about one year ago, former president Jair Bolsonaro sanctioned a law that guaranteed the autonomy of the Central Bank, Lula seems unhappy with this as it is essentially disconnecting policy cycles from political cycles.
– Pakistan’s interest rates to be hiked by 200 basis points upon demands from the IMF. Officials of the IMF are ‘painstakingly reviewing’ every aspect of the agreement, and unlike previous deals, measures are put into action prior to agreements being reached. Interest rates have reached 21% which is now an all time high.

Conclusion

The weakness in the U.S. Equity markets is fuelled by concerns of the Fed continuing to raise rates and corporate earnings coming in on the low side of estimates. Despite navigating a difficult macroeconomic landscape markets must also consider the geopolitic risks at present. Looking ahead we have the consumer confidence report in the US and a range of corporate earnings.

Written by:

Harry Bennett

Harry Bennett

Harry started as a commodity consultant in November 2017, having previously worked for a wealth management firm in Hong Kong. Harry first entered the financial services sector upon graduating from his Civil Engineering degree in 2015. Whilst still early in his career, Harry’s passion and ambition to develop his knowledge within the sector are clear. Harry is currently studying all aspects of the commodity markets, and his spare time is spent on the golf course or socialising with family and friends.

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