Digital Finance Analytics (DFA) Blog – Page 82

Muddling Through: Market Update For Week To 24th Dec 2022

Investors have dumped equities at a record pace in the days since major central banks signaled, they won’t be deterred in their fight against inflation—a fitting end to the worst year for world stocks since the global financial crisis. Equity funds were hit by outflows of almost $42 billion, the highest ever, in a week when the Federal Reserve, the European Central Bank and the Bank of Japan all sounded staunchly hawkish notes in their policy outlook for next year, squashing bets of an imminent return to the era of cheap money.

The markets drifted into a weary close ahead of the Christmas break and closed slightly higher on Friday and Treasury yields advanced as investors digested a deluge of economic data ahead of the holiday long weekend. But this capped a week fraught with worries over the Fed’s restrictive monetary policy and related recession fears, and volumes were way down, with thin trading volumes creating more exaggerated moves Thursday and Friday. On U.S. exchanges 7.75 billion shares changed hands on Friday compared with the 11.41 billion averages for the last 20 sessions.

On the political front, The U.S. House of Representatives passed the $1.7 trillion bill to fund government operations on Friday by a vote of 255-201, paving the way for President Joe Biden to sign it into law.

Investors have been jittery since last week as the Fed indicated that it remains stubbornly committed to achieving the 2 per cent inflation goal and projected rate hikes to above 5 per cent in 2023, a level not seen since 2007. The markets are on edge over what the path for Fed policy is going to be for next year as that’s going to drive the economy and corporate earnings.

CONTENT

0:00 Start
00:17 Introduction
2:00 US Macro
4:08 Latest PCE
6:35 US Markets
8:40 Gold, Oil
10:50 Europe
12:45 Japan Surprise
14:40 China and COVID
16:20 Australian Markets
19:45 Australian Macro
22:30 Crypto
23:40 Close

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Wall Street’s Winter Freeze

Well, the temperatures in the US are set to tumble driven by a significant arctic blast – leading to perhaps the coldest Christmas Day on record.

And Wall Street came out in sympathy, reversing the anemic gains from the last couple of days, during which the talk of the Santa Rally was again on – though I had my doubts. And again, trade volumes were lower than trend, with10.88 billion shares changing hands, compared with the 11.24 billion average for the last 20 trading days.

And weirdly it was the good news is bad news syndrome, because data again underscores the likelihood the FED will continue to lift rate, into a recession. Indeed, Wall Street’s major averages closed lower on Thursday with technology-heavy NASDAQ’s 2% drop leading losses as investors worried that data showing a resilient economy would lead the U.S. Federal Reserve to keep hiking interest rates for longer than feared.

The final estimate of the third-quarter U.S. gross domestic product was for 3.2% annualized growth, above the previous estimate of 2.9%.
Meanwhile, the Labor Department said filings for state unemployment benefits rose to 216,000 last week but were below economist estimates for 222,000.

The job market, meanwhile, remained tight as initial jobless claims fell less than expected last week.

“The labor market remains very tight,” Jefferies said in a note. “We expect that it will soften eventually, but it is starting from a very significant position of strength, and it will take a little while longer for the cracks to form.

And a third report showed the Conference Board’s leading indicator, a gauge of future U.S. economic activity, fell for a ninth straight month in November.

“We’re moving past one of the big worries of 2022 which was the Federal Reserve response to high inflationary pressure to the worry about 2023, which is a recession unfolding in the United States and probably globally too,” said Matt Stucky, senior portfolio manager for equities at Northwestern Mutual Wealth Management Company. “Today’s data, in my mind, kind of confirmed this is the direction we’re heading,” said Stucky, adding that high inflation, a bad economy and tight job market should lead investors “to come to grips with reality that earnings estimates are too high” for 2023.

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The Pint-Sized Santa Rally Is Unconvincing!

In the immediate run up to the Christmas break, on U.S. exchanges 9.81 billion shares changed hands, compared with the 11.16 billion averages for the last 20 sessions. So, we can expect to see some price action on lower volumes, and no real surprise that Wall Street’s three main stock indexes closed higher on Wednesday for their biggest daily gains so far in December with help from upbeat Nike and FedEx quarterly earnings, as well as improving consumer confidence and easing inflation expectations from investors.

Beaten-down tech stocks were snapped up as the climb in Treasury yields cooled following data showing that consumer confidence rose more than expected.

The Dow Jones Industrial Average rose 1.6%, to 33,376.48, the S&P 500 gained 1.49%, to 3,878.44 and the NASDAQ Composite added 1.54%, to 10,709.37.

The Conference Board’s consumer confidence gauge jumped to 108.3 from 101.4, beating economists’ forecast for a reading of 101.0.

Data showing a strong consumer sentiment, a key indicator of consumer spending, which drives the bulk of economic growth, eased fears about a recession, maybe….

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