U.S. and International Equities
Markets Mostly Lower
The major markets finished lower, reversing two straight week of gains. Market participants were concerned about earnings quality as top and bottom-line beat rates were light, despite lower estimates. In addition, steadfast Federal Reserve (Fed) policy on interest rates and debt ceiling concerns weigh on investor’s minds. Emerging markets finished the week on a positive note as Hong Kong and Chinese stocks outperformed given positive reopening/policy support dynamics.
Fixed Income Higher as Yields Decline
The Bloomberg Aggregate Bond Index finished the week higher as yields declined on the latest evidence of easing price pressures. In addition, high-yield corporate bonds, as tracked by the Bloomberg High Yield index, finished the week higher, following their equity counterparts.
This week, investors flooded municipal bond funds with the biggest influx of cash in more than a year, as demand returned to the $4 trillion state and local government debt market. Municipal bond funds garnered $2 billion in the week ended Wednesday, the largest inflow since July 2021, according to Refinitiv Lipper US Fund Flows data. High-yield municipal funds added $917 million over that period, notching their fifth-biggest inflow on record, the data show.
Commodities Mostly Higher as Natural Gas Prices Selloff
Oil and natural gas prices finished the week mixed as both commodities moved in opposite directions for the second straight week. Oil moved higher given an improving economic backdrop in China. European natural gas prices continue to fall, reaching prices below levels last seen since before the Russia-Ukraine conflict amid warmer-than-anticipated weather and storage facility inventories at record seasonal highs. The major metals, including gold, silver, and copper finished the week mixed.
Economic Weekly Roundup
U.S. Inflation Waning
Various measures of inflation are easing as monetary policy tightens. The Adobe Digital Price Index, a measure of online prices modeled after the government’s inflation metric, fell 1.6% year over year in December, the fourth consecutive decline. Rental costs for new customers are also easing. Both Zumper and ApartmentList report cooling rental markets as vacancy rates increased and household formation declines. Housing costs in the U.S. will likely decline for most of this year.
German Economic Sentiment
Sentiment improved for the German economy as inflation pressures decline. So far, the winter has been warmer than normal, diminishing the demand for energy. The outlook improved according to the ZEW Institute’s sentiment index, which is now the highest since the start of the Russia-Ukraine crisis. Investors are now getting less bad news out of Europe.
U.K. Inflation Improving
U.K.’s annual inflation rate declined in December to 10.5% after reaching a peak of 11.1% in October. Price pressures are still a cause for concern and will likely force the Bank of England (BOE) to increase target rates by 0.50% at the February meeting. The BOE’s faster-than-expected pace in rate hikes relative to the Fed is pushing the pound higher relative to the euro and dollar.
Weekly Employment Report
Initial claims for the latest week came in below economists’ expectations while continuing claims inched higher. Labor market conditions remain tight even though there are some signs of slowing job growth, increasing layoffs, and higher unemployment.
The following economic data and potentially market-moving events are slated for the week ahead:
- Monday: Building permits (Dec), leading indicators (Dec)
- Tuesday: PMI Composite (Jan), S&P Global PMI Manufacturing and Services (Jan)
- Thursday: Weekly initial and continuing unemployment claims, durable orders (Dec), GDP (Q4), wholesale inventories (Dec), new home sales (Dec),
- Friday: Personal consumption expenditures (Dec), personal income (Dec), University of Michigan sentiment (Jan), pending home sales (Dec), BEA Total Vehicle Sales (Dec)
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