Please see below, Brooks Macdonald’s Weekly Market Commentary, analysing the performance of markets over the past week. Received last night – 13/02/2023
Equities fell last week as investors called into question the disinflationary narrative that has driven returns in 2023
Last week saw the worst US equity performance so far in 2023 with European shares also falling as the disinflation narrative was called into question by investors. Last week began under the shroud of the stronger-than-expected US employment numbers released the previous Friday but hawkish central bank speak and strong US used car inflation caused sentiment to continue to wane after a mid-week attempt at a rally.
US CPI on Tuesday will confirm whether the disinflationary trend remains intact and contains important labour market data
The latest, all-important, US inflation print has come around quickly with the headline US CPI expected to have expanded by 0.5% month-on-month on Tuesday, equating to a 6.2% year-on-year gain. US Core CPI is expected to have expanded by 0.4% month-on-month, driving the year-on-year number to 5.5%. Higher gas prices are the main factor driving the headline CPI number higher. Investors will also be looking at the length of the average workweek which is expected to have contracted last month, and the average hourly earnings which are expected to rise by 0.2% after rising by 0.3% in the last reading. There will be dual hurdles in the data tomorrow, does the headline and core CPI number continue to show disinflationary progress within the year-on-year number and secondly are there signs that some of the tightness in the wage market is easing. Later this week sees the release of the latest US producer price inflation which is considered a lead indicator of future consumer inflationary pressure.
After a dismal set of US leading indicators were released in January, markets expect these to be upgraded in this week’s reading
Recent US economic data has been stronger over the last few weeks and this stands in contrast to the start of the year which saw some pretty terrible releases. One of those poor releases were the US leading indicators, the latest release of which we will see on Friday. The US leading indicators are expected to pick up from the last reading but continue to stay in negative territory. Other data that is expected to bounce from the last reading include regional factory surveys and industrial production.
With the US earnings season well past its halfway point, the main questions that remain in the US market are whether the disinflationary trend continues and how strong the economy is. The data releases this week will help provide some concrete data after the speculation, both by investors and central bankers, over the last week which has driven market volatility.
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Alex Kitteringham
14th February 2023