The Long and Short of it, week ending 13 January 2023

Publication Type: Market Commentaries

Stock markets moved higher last week propelled by growing expectations of peak and falling inflation and, as a result, a significant easing of Fed monetary policy. All 3 major stock indexes rose prior to Thursday’s CPI release, all but ignoring Fed Chair Jerome Powell’s (and other Fed officials’) hawkish comments reminding the market that the Fed would sacrifice growth over inflation. Thursday’s slightly better-than-expected CPI release showed YoY headline and core inflation fell to 6.5% and 6.1%, respectively (MoM headline CPI actually decreased 0.1%). And while the Fed has warned the Fed funds rate will remain high for a while, expectations of the Fed lowering rates before year end have grown. Better-than-expected bank earnings reports (from JP Morgan and Bank of America) helped move stock prices higher Friday as well. While the U.S. dollar significantly weakened last week, the 10-year Treasury rate only moved slightly lower. 10-year Treasury rates fell 6bps with 10-year real rates dropping 18bps and 10-year inflation expectation increasing 12bps. At week’s end, the S&P 500 Index rose 2.7% to 3,999.09, the Nasdaq Composite Index increased 4.8% to 11,079.16, the Dow Jones Industrial Average gained 2.0% to close at 34,302.81, the 10-year U.S. Treasury rate fell 6bps to 3.50% and the U.S. dollar (as measured by the ICE U.S. Dollar index – DXY) weakened 1.7%.

European markets also moved higher last week but less so than U.S. markets. Both the STOXX 600 and FTSE 100 Indexes benefited from declining U.S. inflation levels as revealed by Thursday’s CPI release but also were boosted by China’s border reopening and by stronger-than-expected economic data. The FTSE 100 Index also benefited from rising commodity prices. Better-than-expected Christmas sales and optimistic guidance from some retailers helped push retail stock prices higher while rising oil and base metal prices added to energy and mining stock prices. GDP releases in the UK and Germany also contributed to index gains with both recording better-thanexpected levels. For the week, the FTSE 100 Index rose 1.9% to 7,844.07, the STOXX 600 Index increased 1.8% to 452.54, the 10-year Gilt rate fell 11bps to 3.37%, the 10-year Bund rate fell 7bps to 2.14% and the British pound and euro strengthened 1.1% and 1.7%, respectively, both against the U.S. dollar.

Top performing ETPs over the week

. 3x Long ETPs 3x Short ETPs
UK +3x Glencore (3LGL) +18.7 % -3x BAE Systems (3SBA) +8.7%
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The Long and Short of it, week ending 13 January 2023

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