Where Are We Headed?
This weekly is on the early side and I am wary of what Friday brings, especially as the debt ceiling saga gives rise to further bond market volatility.
In this week’s update – In what has generally been a data-light week, the news still points to a subdued picture. Global equity funds posted net inflows on hopes of subsiding inflation risks. Global bond funds too had inflows with corporate and HY funds faring best. Continue reading for the full weekly market update.
Weak retail sales (headline inflation: -1.1% m/m; core inflation: -0.7% m/m), job openings are easing while the jobs-to-workers gap has shrunk quite substantially. Wage growth suggests moderation but the spread is wide. The main concern is the statutory debt limit and whether Congress will see this through. We have been here many times and, on balance, we should get through. Treasury will have to take strong measures to continue funding its operations – this will likely be in May when tax receipts are known in April. The limit should then remain operational between August and October after which something will have to be done or else catastrophe will follow. Past history shows it will be extended.
GDP just scraped through into a positive number thanks to alcohol consumption over the world cup. The labour market stays tight and wages moved to the upside. Inflation just about moderated – probably unlikely enough for the BoE to pause rates.
Germany’s labour market is still strong while vacancies start to ease; the ECB is still split on rate action (will +0.50% be enough or is more needed?)
China’s Q4 ’22 GDP surprised to the upside (+2.9% y/y) suggesting full year GDP of +3%. Not surprising seeing as exports shrunk nearly -10% y/y in December, retail sales fell -1.8% y/y (better than expected)
The BoJ is becoming very topical these days as communication still seems to be antagonistic to what is going on at a country-wide level. They are maintaining an easing stance.
For w/e 18th January, global equity funds posted net inflows on hopes of subsiding inflation risks and tempered rate hikes. $5.24bn was added – mostly into Europe on cheaper valuations (+$7.06bn). Asia too saw inflows ($1.16bn) while the US saw outflows of -$3.13bn. Global bond funds too had inflows of $13.23bn with corporate and HY funds faring best
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