Market Synopsis: Equities mixed, Treasury Yields up, Commodities down, Dollar down, Crypto flat
Past Week Events:
- There were a number of critical macro events that happened this week. One of the most important was the release of the FOMC(Federal Open Market Committee) decision on the Federal Funds rate. The federal funds rate is the rate that banks charge each other for borrowing money overnight. This helps regulate the economy as a higher rate will make lending more difficult thus slowing the economy. The FOMC hiked rates at the expected 25bp bringing the rate to 4.5%-4.75%. Markets had already priced this in and were relieved to see verification
- Following soon after the release of the FOMC’s decision Jerome Powell gave a press conference in which he addressed the current macroeconomic environment and then took questions. His speech was rather dovish with him explaining that we are beginning to see the first stages of deflation. Many expected a slightly hawkish tone. Considering this his comments sent markets rallying to the upside.
- Finally, on Friday we received important jobs data. Jobs data provide valuable insight into the strength of the economy. The data was shockingly strong as the US created 517,000 jobs in January which was significantly higher than the expected 188,000. Furthermore, hourly earnings rose by 0.3% and the average workweek increased. With unemployment dropping to a record low of 3.4% markets tumbled because in this market “good news” is bad. This strong jobs data sent rate hike expectations significantly higher sending investors running for the hills.
- UMich consumer sentiment index is a survey that asks how people feel about their financial situation, their spending habits, and about the economy in general. This illustrates how inflation has been affecting consumers. This reports comes out next week.
Market Snapshot:
- It was a busy week with a lot to take in. The major indices all closed in the green on the week except for the Dow Jones was red. The Nasdaq, an index that is tech-heavy, has had a roaring start to the year. Its performance this January is uncontested going back to 1975. Powell’s dovish speech sent markets higher. However, important earnings from major companies like Google, Amazon, and Apple which all reported on Thursday thoroughly disappointing. Then, on top of that, jobs data which came out early Friday morning spooked markets. It seems with the Nasdaq’s astonishing performance we are due for a correction.
Quip of the Week: “Why did the stock market take a nap?
- Because it was feeling bear-ly awake!”
U.S Equities:
Indexes(Week)
SPX 4,136.48(1.62%), DJIA 33,926.01(-0.15%),
NASDAQ 12,006.95(3.31%), RUT 1,985.53(3.88%)
Sectors
- The sectors this week were quite broadly distributed. On the upper end were Communication, Tech, and consumer discretionary rising 6.42%, 4.96%, and 3.23% respectively. On the other hand, energy was battered on the week closing down almost 5%. It seems the usual relationship between the stock market and the economy is somewhat disconnected, and the performance of cyclical stocks is not reflecting the underlying economic conditions as it typically should.
Treasuries:
- Movements in the treasury markets were quite violent. It can be seen that on Wednesday when the Federal Funds rate was released and Powell spoke treasury yields dove. However, when the huge beat on jobs data came out on Friday all of those losses on the yield side were reversed turning them green on the week.
Commodities:
Oil
- Oil was beaten down quite aggressively on the week with WTI sitting at about 73$ a barrel. The recent sell-off was prompted by the strong jobs data on Friday. The strong data prompted interest rate concerns which then translated over to a decline in Oil.
Gold
- Similar to Oil Gold was pummeled dropping 100$ from its highs. Jobs data is also the culprit for Gold's recent downturn. The jobs data was truly shocking for many. Nobody was expecting a beat like what we saw.
BTC -23,448, 1.52% ETH - 1,666.84 -4.26%
- Since cryptocurrencies are treated like any other risk asset their performance is closely correlated with the stock market. That means that Powell's speech and the Federal Funds rate as well as the jobs data affected Bitcoin in the same way it did the stock market.
Europe:
Stoxx 600- 460.77, 1.23% DAX -15,476, 2.15% FTSE 100 -7,901, 1.76%
Chart of the DAX (5-day)
- The ECB has been known for taking a hawkish approach to stopping inflation. There approach has most definitely seen results, as inflation in the short-term has came to a halt for the most part and long-term inflation seems under the control of the ECB. Despite these adequate results, the ECB has shown no signs of slowing down. Bank of Italy's governor, Iganzio Visco, recently stated that the ECB's hawkish approach can have "serious implications" economically if their approach continues to be possibly too hawkish. This may be the start of a shift in taking a more loose/dovish approach to monetary policy in Europe.
Asia:
XJO (Australia)-7,558, 0.86% Shanghai 180 Index-8,669, -1.54% Nikkei 225- 27,509, 0.46%
XJO 5-day Chart
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