The Long and Short of it, week ending 24 February 2023
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Stock markets started the week on a sour note, with all 3 major indexes falling 2% or more Tuesday (the first trading day of a holiday-shortened week). Tuesday’s dour sentiment was a continuation of the previous week’s but with investors ratcheting up concerns of Fed monetary policy moving rates higher for longer following stronger-than-expected business activity as measured by the PMI Composite Flash release. Wednesday’s release of FOMC minutes revealed no new substantive insights, moving stock index levels only slightly. Thursday saw all three indexes move higher, benefiting from a surging NVDA stock price (up 14%) and despite falling initial jobless claims and increased market expectations of a 50bp rate hike in March. Friday’s higher-than-expected PCE Price Index release combined with a much greater-than-expected increase in consumer spending added to market expectations of more aggressive Fed monetary policy causing all 3 indexes to drop at least 1%. Reflecting similar sentiment as the stock market, the 10-year Treasury rate rose and the U.S. dollar strengthened. The 13bp increase in 10-year Treasury rates came almost entirely from rising real rates (up 12bps). For the week, the S&P 500 Index decreased 2.7% to 3,970.04, the Nasdaq Composite Index fell 3.3% to 11,394.94, the Dow Jones Industrial Average dropped 3.0% to 32,817.05, the 10-year U.S. Treasury rate rose 13bp to 3.95% and the U.S. dollar (as measured by the ICE U.S. Dollar index – DXY) strengthened 1.3%.
European stock indexes also finished the week lower but less so that U.S. stock indexes. Both the STOXX 600 and FTSE 100 Indexes moved slightly higher Monday benefiting from increasing oil and base metal prices, rising EZ consumer confidence and an improved Bundesbank economic outlook. Better-than-expected EZ, German, UK and French PMI Composite releases Tuesday increased expectations of more aggressive central bank monetary policy and along with sharply lower U.S. stock indexes, moved index levels lower. Indexes moved lower again Wednesday falling on continued rate hike concerns (and on uncertainty surrounding the release of FOMC minutes after the close of the market) and, this time, on lower oil and base metal prices. The STOXX 600 Index moved marginally higher Thursday with a surging NVDA share price and upbeat earnings guidance from other companies. Both Indexes fell Friday reacting to a greater-than-expected PCE Price Index release with the STOXX 600 Index falling more due to its greater tech-stock and lower U.S. dollar revenue exposure. For the week, the STOXX 600 Index decreased 1.4% to 457.70, the FTSE 100 Index fell 1.6% to 7,878.66, the 10-year Gilt rate rose 12bps to 3.66%, the 10-year Bund rate increased 7bps to 2.53%, the British pound and euro weakened 0.8% and 1.3%, respectively, both versus the U.S. dollar.
Top performing ETPs over the week
| . | 3x Long ETPs | 3x Short ETPs | ||
|---|---|---|---|---|
| UK | +3x Rolls-Royce (3LRR) | +80.5 % | -3x Rio Tinto (3SRI) | +14.4% |
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The Long and Short of it, week ending 24 February 2023
