A surprise in US inflation data, a strengthening US dollar, increased economic activity among consumers and a sharp rally in cryptocurrencies despite their legal woes - these are just some of the events of the past week. What else could we have found out?
Macroeconomic data
The week started with Japan's GDP data for Q4 2022. It reported growth of 0.2% from the previous quarter, which was lower than economists' forecasts of 0.5% growth.
Tuesday saw the release of indicators on the UK labour market situation, including the Average Earnings Index and Claimant Count Change for January 2023. The Earnings Index fell by 0.3 percentage points from the last reading, coming in at 5.9% (6.2% was expected), while the Claimant Count fell by 12.9,000 from the previous month (17,900 was expected). The UK100 Index (UK100) hit new historic peaks this week, reaching 8000 for the time being.
Source: Conotoxia MT5, UK100, Daily
On the same day, we could learn about the CPI and core inflation readings for January 2023 for the US economy. What seems to have surprised analysts was the higher-than-expected CPI reading of 6.4% (6.2% was expected), while core inflation rose by an expected 0.4% month-on-month. This might imply that the level of disinflation is not going in line with previous assumptions, which could force the Fed to increase interest rates further. Shortly after the release of the data, the S&P 500 Index (US500) fell by 1%, eventually ending the week on a return to the levels seen at the end of last week.
Source: Conotoxia MT5, US500, Daily
On Wednesday, we learned of the UK's CPI inflation reading. Price dynamics in this economy came in below expectations at 10.1% (10.3% was expected). This is the fourth consecutive month of disinflation in the UK.
Indicators of US economic activity, such as the volume of retail sales and core retail sales (excluding car sales), came as a positive surprise on the day. Both indicators beat the most optimistic forecasts, coming in at 2.3% m/m. (0.8% m/m was expected) and 3% m/m. (1.8% m/m. was expected). It seems that, despite the economic slowdown and high inflation, consumers have not stopped their desire to make massive purchases.
Thursday brought another batch of data from the United States. First, we learned about the number of new applications for unemployment benefits - 194 000 (200 000 was expected), which may indicate that the US labour market remains in excellent shape. Next, we learned about the sentiment among industrial companies in Philadelphia. The Philadelphia Fed Manufacturing Index turned out to be extremely negative, coming in at minus 24.3 points (minus 7.4 points were expected). This is the worst reading since the pandemic, which may illustrate how much of a slowdown in US manufacturing is expected. Finally, there was another dose of producer PPI inflation, whose reading also came in beating analysts' expectations, at 0.7% m/m in January. (0.4% m/m was expected). This appears to have triggered a correction on expectations for future interest rates, with the spread between 2-year and 10-year bond yields at minus 0.76 percentage points, unseen since 1981. It should be recalled that historically negative values have preceded slowdowns or crises.
Source: Fred
The stock market
The accumulation of negative and positive macroeconomic data may have left the market in dismay. Most sectors ended the week at levels seen seven days ago. The waste sector grew the most, rising 1.5% over the week. We could see this in the performance of the Utilities Select Sector SPDR Fund (XLU). In second place was the energy sector, up 1.3%.
Source: Conotoxia MT5, XLU, Daily
Key company reports for Q4 2022 included Tuesday's report from beverage maker Coca-Cola (CocaColaHSB). Results came in line with expectations, with earnings per share EPS of 0.45. On the same day, we saw a report from short-term rental platform Airbnb (Airbnb), which reported EPS greater than expectations of 0.48 (0.25 was expected).
Source: Conotoxia MT5, AirBNB, Daily
On Wednesday, US-based multinational technology company that specialises in computer networking and telecommunications Cisco (Cisco) released better-than-expected financial results. Last year's Q4 EPS was 0.88 (0.85 was expected). The company's shares rose more than 9% during the week. And it was one of the strongest-growing companies in the S&P 500 index.
Source: Heat map for the S&P 500 index, https://finviz.com/map.ashx?t=sec&st=w1
Currency and cryptocurrency market
In the foreign exchange market, we could see a significant strengthening of the US dollar this week. This was particularly noticeable from the quotations of the USD/JPY pair, which rose by more than 2.7%.
Source: Conotoxia MT5, USDJPY, Daily
Another strengthening of the US dollar was seen on the EUR/USD pair, which has fallen by 0.4% since the start of the week. This is the third consecutive week of dollar strengthening and declines on this pair.
Investors may have been amazed by cryptocurrency listings. Despite high inflation and thus the risk of further interest rate rises, the closure of stacking functionality by the Kraken exchange in the US and the ban on the issuance of new stablecoin BUSD, the value of bitcoin rose by more than 9%. In contrast, the value of the overall stablecoin market may have stalled.
Source: Conotoxia MT5, BTCUSD, Daily
Grzegorz Dróżdż, Market Analyst of Conotoxia Ltd. (Conotoxia investment service)
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76,41% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Trade this news from Conotoxia Ltd. platforms
Go to your account
