Global equities drifted lower on the week as rising yields reflected the hawkish tone from a number of Federal Reserve officials this week. The yield on the US 10-year Treasury note rose 19 basis points to 3.72% at Friday’s close.
Numerous US Federal Reserve officials addressed the economic outlook this week with the overriding message being that the central bank has more work to do in its battle with inflation. Since the Fed meeting last week, markets have priced in an additional rate rise and priced out a rate cut before the end of 2023, bringing expectations more into line with the central bank’s projections. The S&P 500 ended the week -1.1% lower. With more than two-thirds of the S&P 500 constituents having now reported for Q4 2022, circa 69% of reporters have beaten consensus EPS expectations which is below the five-year average of 77%.[1]
Following key central bank policy meetings this month, further rate rises were seen last week from the Bank of Mexico, the Reserve Bank of Australia, Sweden’s Riksbank, and the Reserve Bank of India. Meanwhile the Bank of Canada paused its rate hikes, citing the high level of homeowner indebtedness as a factor in that decision.
Elsewhere, the UK’s FTSE 100 index closed with a weekly loss of just -0.2%, whilst the mid-cap FTSE 250 index suffered a greater -2.7% decline. Japan’s Nikkei 225 meanwhile was one of few indices posting a small positive return last week, with a new governor of the Bank of Japan expected to be nominated this coming week. The term of current Governor Haruhiko Kuroda ends on 8 April.
The price of a barrel of West Texas Intermediate crude oil climbed more than $6 to close on Friday a shade under $80. Russia says it will cut its oil output by about 500,000 barrels a day in March, or roughly 5% of January’s production.[2]
A nomination for the new Bank of Japan governor is expected this week, most likely on Tuesday, following which confirmation hearings for the new Governor and two deputies would take place in March. Kazuo Ueda, an academic and former member of the BOJ board, has been touted as the most likely nominee for the position.
Significant data releases this week from the States, beginning with a much-anticipated Consumer Price Index (CPI) release on Tuesday. Consensus forecasts suggest the headline rate of inflation could fall to 6.2%, down from 6.5%. Retail Sales data is also due on Wednesday with Housing Starts following on Thursday.
The UK will see its own inflation data with both CPI and Producer Price Index data scheduled for Wednesday morning. UK CPI is also expected to fall but remaining in double digits at 10.2%, before the release of UK Retail Sales figures to close out the week on Friday.[3]
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[1] Factset, 13/02/23
[2] Refinitiv, 13/02/23
[3] Forex Factory, 13/02/23
SJP Approved 13/02/23