U.S. and International Equities
The major markets finished higher for the second straight week given an improving December inflation report. December’s report gave market participants Goldilocks-type data that they wanted to help ease concerns about an overly aggressive Fed. Fourth quarter earnings season begins today with the Street consensus for S&P 500 earnings to decline 4.1% year-over-year in Q4, the first contraction since Q3 of 2020.
International equities performed well this week as U.K. GDP unexpectedly expanded in November with services driving the upside. In addition, Germany grew in 2022 by 1.9%, mostly supported by solid economic activity in Q1 and Q2. Chinese exports fell nearly 10% year-over-year in December, which represents the worst reading since February 2020. That being said, the reading came in better than consensus.
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.
The U.S. Treasury curve rallied following the December CPI print yesterday, with short and long-term rates declining 6 to 12 bps. While rate markets were initially whipsawed by the in-line CPI print, market participants took the inflation print to cut monetary tightening bets as the “inflation-has-peaked” narrative solidifies.
Commodities Mostly Higher as Natural Gas Prices Selloff
Both oil and natural gas prices finished the week mixed. 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. The major metals, including gold, silver, and copper finished the week higher.
Economic Weekly Roundup
U.S. December CPI
U.S. headline inflation fell in December, pushing the annual rate down to 6.5%, the lowest since October 2021. Medical care services rose 0.1% in December after falling the previous two months. Both new and used vehicle prices fell in December as consumers start to pull back demand, while inventories start to normalize.
Tokyo December Inflation
Tokyo inflation rose 4% in December, the highest since 1981. High inflation will likely dampen consumer spending, as incomes are not keeping up with rising prices. Real household spending fell 1.2% from a year ago in November.
U.S. December Small Business Report
The National Federation of Independent Business (NFIB) reported the number of firms concerned about labor costs declined for the second consecutive month in December. The percent of firms planning to increase employment is the lowest since January 2021. Investors should expect labor markets to cool in the coming months.
Weekly Employment Report
Both continuing claims for unemployment insurance as well as initial claims for the latest week came in below economists’ expectations. 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:
- Wednesday: Producer Price Index (Dec), retail sales (Dec), capacity utilization (Dec), industrial production (Dec), manufacturing production (Dec), business inventories (Nov), NAHB Housing Market Index (Jan)
- Thursday: Weekly initial and continuing unemployment claims, building permits (Dec), housing starts (Dec)
- Friday: Existing home sales (Dec)
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