Digital Finance Analytics (DFA) Blog

Our weekly market review and update, covering the US, Europe Asia and Australia.

CONTENT

0:00 Start
0:20 Introduction
1:30 Bonds
2:00 Markets
5:40 Oil Stronger On Russian Cuts
10:20 Europe and UK
12:08 China
13:00 Chinese Government Bonds
16:54 Rest Of Asia
18:00 Australia
21:00 RBA Hiding
25:35 Statement On Monetary Policy
26:00 Gold In Demand?
28:40 Crypto Commingling Funds
30:50 Conclusion And Close

A month is a long time for the markets, and after the stella rises in January, driven by hopes of inflation easing, and massive tax-driven trading, reality is now dawning, at least for some as strong jobs data and comments from Federal Reserve Chair Jerome Powell stoked worries about how much higher interest rates may need to climb.

“What has been going on for the last few days is that every other day there is a Fed governor going to talk hawkish,” said Kevin Rendino, chief executive of asset manager 180 Degree Capital.

In a note, JPMorgan said while it sees the potential for the 10-year US yield to edge somewhat higher, it thinks the two-year yield has hit a high and will pull back. Philadelphia Fed president Patrick Harker is optimistic about the US economy and the need for still higher interest rates. “We need to get above five — we’re really close to that right now — and then pause,” Harker said. “How much above five? We’ll see.”

So the Nasdaq ended lower on Friday as megacap growth stocks came under pressure after Treasury yields pointed to higher interest rates as yields on the benchmark 10-year Treasury note rose to their highest in more than a month following an auction on Thursday of 30-year bonds that saw weak demand. The yield on the US 10-year note rose 9 basis points to 3.743 while the two-year bill was at 4.53 per cent. And shares of ride-hailing firm Lyft plunged following a downbeat profit forecast.

The Nasdaq posted its first weekly fall this year, down 2.41%, while the S&P 500 ended the week lower 1.11% and the Dow Jones lost 0.17%, in a week dominated by hawkish commentary from U.S. Federal Reserve officials and earnings reports from more than half of the S&P 500 constituents.

But a rally in energy stocks as oil prices climbed on Russia’s plans to cut crude supplies helped push up the Dow and the S&P 500 The energy sector jumped 3.92% while the consumer
discretionary sector fell 1.22%.

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Something weird is afoot. There is much talk of falling inflation, moderating wages, record-low unemployment and possible soft landings. Yet some on Wall Street says 2023 will likely turn ugly.

Sure, we had a beautiful January for investors – but what if this is only a mirage—a stock rally that’s already gone too far.

Well, this the warning from strategists at Bank of America, who said investors could face brutal declines if economic growth crumbles in the second half of the year. The risk is that inflation flares up again over the next few months, and that the US economy faces a deeper recession (than that initially predicted) after staying resilient in the first six months of 2023, they wrote. But with more experts seeing potential success for the Fed after a year of panicky recession calls, it may be a warning that’s hard for some to heed. The “most painful trade,” the bank’s strategists wrote, is always the “apocalypse postponed.”

The traditional favourable start to financial markets in 2023, due to investor fund inflows that typically accompany the new year, has been turbocharged by data pointing to a greater possibility of a soft landing for the US economy and, most recently, the signals coming out of the Federal Reserve.

So, underinvested investors need to assess their willingness to lose as valuations surge ahead of the consensus view on the economic outlook says Mohamed A. El-Erian is a former chief executive officer of Pimco, president of Queens’ College, Cambridge; chief economic adviser at Allianz; and chair of Gramercy Fund Management.

The generalised price rally has been so quick and so big for both stocks and bonds that it raises an interesting question for underinvested investors who have not yet put their money to work. What they should do correlates closely, but not entirely, to their economic and policy views.

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/