Home / Research / The Long and Short of it, week ending 17 February 2023

The Long and Short of it, week ending 17 February 2023

Posted: 21 February, 2023

Topic: Telecoms , Financials , Basic Materials , Energy , Industrials , Technology

Publication Type: Market Commentaries

A mixed week for major stock market indexes with market sentiment turning from risk-on to risk-off after digesting implications of higher-than-expected inflation readings and strong economic data. All three indexes were higher through Wednesday with the Nasdaq Composite Index leading the pack at up 3%. Initial optimism over cooling inflation combined with strong retail sales morphed into concerns of stubbornly-high inflation and a resilient economy leading to a more aggressive Fed raising rates to higher-than-expected levels for a longer-than-previously expected time. Thursday’s higher-than-expected PPI release along with hawkish Fed officials’ comments added to market malaise with index levels dropping markedly over Thursday and Friday. The Nasdaq Composite Index, though finishing the week higher, fell the most, decreasing just under 2.5% over the last 2 days of the week. The 10-year Treasury rate registered a moderate increase, climbing 8bps over the week with most of the increase due to rising 10-year real rates. The U.S. dollar experienced a somewhat volatile week but finished only slightly stronger. For the week, the S&P 500 Index decreased 0.3% to 4,079.09, the Nasdaq Composite Index increased 0.6% to 11,787.27 the Dow Jones Industrial Average edged slightly lower again, falling 0.1% to 33,862.92, the 10- year U.S. Treasury rate rose 8bp to 3.82% and the U.S. dollar (as measured by the ICE U.S. Dollar index – DXY) strengthened 0.2%.

European stock indexes finished higher than U.S. indexes last week. Both the STOXX 600 and FTSE 100 Indexes rose every day but Friday, posting decent gains but mainly for different reasons. Despite some central bank tightening concerns resulting from a higher-than-expected U.S. CPI release Tuesday, growth in UK wages and strong euro zone employment growth, both the STOXX 600 and FTSE 100 Indexes moved higher through Tuesday, supported primarily by strong defence stock performance (due to India proclaiming it wanted to significantly increase defence exports). Both indexes moved higher Wednesday with the STOXX 600 Index benefiting from rising French luxury stock prices (due to expected Chinese demand) and the FTSE 100 Index buoyed by lower-than-expected inflation and a weaker British pound. The STOXX 600 Index, again supported by rising French luxury stock prices, moved higher Thursday as did the FTSE 100 Index due to strong energy and financial stock performance. Both indexes declined Friday, however, as concerns of continued Fed and BoE tightening pushed tech and energy stock prices lower. Both the 10-year Gilt and Bund rates rose close to 10bps last week, with most of the increase occurring Tuesday following the release of U.S. CPI. For the week, the STOXX 600 Index increased 1.4% to 464.3, the FTSE 100 Index rose 1.5% to 8,004,.36, the 10-year Gilt rate rose 14bps to 3.54%, the 10-year Bund rate increased 9bps to 2.46%, the British pound weakened 0.2% and the euro strengthened 0.2% both versus the U.S. dollar.