The Long and Short of it, week ending 03 March 2023
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An up-week for major stock market indexes with investor sentiment gently shifting from overarching concerns of a Fed-induced economic slowdown to guarded optimism of Fed restraint amidst a resilient economy. Indexes moved slightly lower through Wednesday, reacting to stronger-than-expected manufacturing activity, pending home sales and non-defence capital goods orders. Comments from Fed officials Thursday, however, supporting 25bp increment rate increases to allow time to ascertain effects from to-date accumulated increases, bolstered risk-on sentiment pushing indexes higher Thursday and Friday. Friday’s gains were the greatest and came despite much stronger-than-expected services sector activity (based on S&P Global U.S. Services PMI Index). 10-year Treasury rates also reflected the change in investor sentiment over the week, ending the week almost unchanged despite rising 11bps intraweek. Interestingly, a 13bp decline in 10-year real rates was offset entirely by a 14bp increase in 10-year inflation expectations. For the week, the S&P 500 Index increased 1.9% to 4,045.64, the Nasdaq Composite Index rose 2.6% to 11,689.01, the Dow Jones Industrial Average gained 1.7% to 33,390.35, the 10-year U.S. Treasury rate increased 1bp to 3.96% and the U.S. dollar (as measured by the ICE U.S. Dollar index – DXY) weakened 0.7%.
European stock indexes also moved higher last week with the STOXX 600 Index outperforming the FTSE 100 Index. Monday’s announcement of Prime Minister Sunak cementing a post-Brexit Northern Ireland agreement as well as good earnings reports moved both indexes higher though a stronger British pound capped FTSE 100 Index gains. Higher-than-expected euro zone, German, French and Spanish inflation readings moved the STOXX 600 Index lower Tuesday and Wednesday. The FTSE 100 Index moved lower Tuesday as well, falling on record high grocery inflation, but rose Wednesday following comments from BoE Governor Bailey that no decision had been made about the need for future rates hikes and on strong mining-stock performance. Indexes moved higher both Thursday and Friday supported by expectations of Chinese demand, growing expectations of a more restrained Fed (and BoE) and despite sticky euro zone and UK inflation. FTSE 100 Index gains were limited Friday due to a sharply stronger British pound and stocks trading ex-dividend. Both 10-year Bund and Gilt rates rose markedly last week though well off highs set Thursday. The fall in rates Friday may reflect increased expectations of less aggressive central bank monetary policy going forward. For the week, the STOXX 600 Index rose 1.4% to 464.26, the FTSE 100 Index increased 0.9% to 7,947.11, the 10-year Gilt rate rose 17bps to 3.83%, the 10-year Bund rate increased 15bps to 2.68% and the British pound and euro each strengthened 0.8%, both versus the U.S. dollar.
Top performing ETPs over the week
| . | 3x Long ETPs | 3x Short ETPs | ||
|---|---|---|---|---|
| UK | +3x Rolls-Royce (3LRR) | +31.0 % | -3x AstraZeneca (3SAZ) | +8.9% |
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The Long and Short of it, week ending 03 March 2023
