Weekly Market Report: March 22nd, 2023

Markets took in a good number of central bank policy meetings and a relatively full economic calendar last week. Both equity and bond markets rallied nicely on what could be categorized as a dovish policy week and a relatively constructive economic calendar. Equity markets in the U.S, Europe, and Japan all marked new record high closes which, because it had been 30 years since the prior Japanese high, hasn’t happened in a long time. Bonds rallied with yields declining across the curve, pushing the 10yr UST bond yield back down near 4.20% while the USD continued its bullish move higher, up 1% on the week and 3% in 2024. Commodity markets were relatively flat with oil hovering around the $80 mark.

Market Anecdotes

  • The March FOMC meeting didn’t deliver any surprises and reinforced the Fed has little concern that the inflation trajectory has changed. The dovish narrative was welcomed by the markets who seem fine with a loosening policy bias overall, and rate cuts beginning in June.
  • Reading into the Fed’s formal quarterly forecasts, it seems that variability of inflation forecasts appears to be declining, indicating increasing confidence inflation will continue to move toward its 2% target.
  • Foreign central bank policy announcements from the BoE, RBA, SNB, and BoJ were squarely in the dovish camp including the BoJ’s decision to end its 8-year experiment with NIRP. Interest rates across broad global bond markets have, in large part, begun to look normal again.
  • Strength and resilient economic growth in the U.S. continues to defy forecasters and lead the world with Q1 growth forecasts doubling from 1% to 2% since the beginning of the year and 25 consecutive months of sub-4% unemployment.
  • Key contributing factors for dominant U.S. economic growth include very aggressive fiscal policy and elevated spending patterns of the U.S. consumer, averaging a PCE of 69.3% since 2022, well above the pre-CoVid level of 67.6%, and very clearly coming from lower personal savings rates.
  •  Recession indicators, the LEI and yield curve inversion, both with long and varying lags, are still flashing caution with the LEI posting a 20th consecutive YoY contraction reading and the 2yr/10yr curve inversion, at 447 days, surpassing the prior record of 445 days from the 1970’s.
  • A note from BCA suggested China’s real estate sector contraction is in line for a fourth consecutive year of contraction with home sales, new development, and funding headwinds.
  • Both supply and demand forces have bolstered the 13% rally in WTI this year with supply side influences including Ukrainian bombing of Russian refining facilities and OPEC+ continuation of production cuts along with increasing growth forecasts on the demand side.

Economic Release Highlights

  • U.S. March PMI readings (C,M,S) at 52.2, 52,5, 51.7 saw the composite and manufacturing surveys exceed consensus but saw the services component miss.
  • Non-U.S. March PMI (C,M,S) readings were mixed including the Eurozone (49.9, 45.7, 51.1) and the UK (52.9, 49.9, 53.4).
  • February Housing Starts (1.521M v 1.449M) and Permits (1.518M v 1.500M) both registered above their respective spot forecasts.
  • February Existing Home Sales exceeded estimates (4.38M vs 3.920M) and the range of 3.85M to 3.95M by a relatively wide margin.
  • The March Housing Market Index came in above expectations (51 vs 48) and the forecast range of 46 to 50.
This communication is provided for informational purposes only and is not an offer, recommendation or solicitation to buy or sell any security or other investment. This communication does not constitute, nor should it be regarded as, investment research or a research report, a securities or investment recommendation, nor does it provide information reasonably sufficient upon which to base an investment decision. Additional analysis of your or your client’s specific parameters would be required to make an investment decision. This communication is not based on the investment objectives, strategies, goals, financial circumstances, needs or risk tolerance of any client or portfolio and is not presented as suitable to any other particular client or portfolio.
Subscribe To Our Newsletter

Subscribe To Our Newsletter

Join our mailing list to receive the latest financial news and tips

You have Successfully Subscribed!