Friday, March 31, 2023
U.S. and International Equities
Stocks ended their second consecutive week higher. Energy led all sectors on the back of higher crude oil prices. Investors overlooked banking health concerns, in addition to global central banks’ hawkish response to persistent inflation pressures.
The Financial Times reported that more than $340 billion has shifted from banks to higher-paying U.S. money market instruments. This trend caught the attention of Treasury Secretary Janet Yellen, per her comments yesterday highlighting the “structural vulnerabilities” of the nonbanks sector.
Developed international outperformed U.S. stocks even as concerns about the European banking sector remain in the forefront of investor’s minds. The Eurozone inflation landscape continues to improve, however the absolute level still remains high.
Fixed Income Mixed
The Bloomberg Aggregate Bond Index finished lower as bond prices sold off and yields increased. This reverses two straight weeks of higher performance for the index. In addition, high-yield corporate bonds, as tracked by the Bloomberg High Yield index, gained ground this week. This particular fixed income investment class had been the most affected given the recent banking climate challenges.
While still positive for the month, agency mortgage-backed securities (MBS) have underperformed other core bond sectors due to still elevated levels of interest rate volatility. As we get more clarity around the Federal Reserve’s (Fed) rate hiking campaign, we expect interest rate volatility to subside, which should allow agency MBS to outperform. We retain our slight overweight MBS allocation in our models.
Energy prices finished mixed even as traders remain concerned over the present banking climate and its potential effect on the economy. Crude oil rallied for the second straight week after reaching a 15-month low three weeks ago. Natural gas prices declined for the third straight week. The major metals, gold, silver, and copper, ended the week mixed.
Economic Weekly Roundup
February Personal Consumption Expenditures Improves
The Commerce Department reported that the PCE price index excluding food and energy increased 0.3% for February. That was below the 0.4% estimate and lower than January’s increase of 0.5%. Including food and energy, headline PCE rose 0.3% monthly and 5% annually, compared with 0.6% and 5.3% in January, respectively.
Eurozone preliminary headline Consumer Price Index (CPI) came in cooler than expected in March but remains elevated at 6.9% year-over-year. Core inflation was in line with economists’ expectations but witnessed a small uptick vs. February.
U.S. Consumer Confidence
The Conference Board reported that confidence in the US economy increased in March despite the recent banking industry challenges. The Board reports that the index increased to 104.2 in March from an upwardly revised reading of 103.4 the month before. The index print surpassed FactSet economist expectations of 100.9.
The March headline index saw a boost from consumers’ improved levels of confidence for the six-month-ahead time period. The Expectations Index increased to 73 from 70.4 in February, while the Present Situation Index decline to 151.1 from 153.
Eurozone Consumer Confidence
According to the European Commission, Eurozone economic confidence declined for the second straight month in March. This month’s print reflected slightly lower confidence in the industry, retail trade, and construction sectors as sentiment in services remained for the most part unchanged.
U.S. wholesale inventories rose 0.2% in February, which came in higher than FactSet economist estimates. Wholesale inventories increased last month in order to support increased demand for goods as the economy grows and supply chains recover from the pandemic.
Weekly Unemployment Report
Initial claims for the latest week came in above economists’ expectations as well as the prior weeks’ report while continuing claims came in below expectations. Labor markets continue to show limited signs of softening.
The following economic data are slated for the week ahead:
- Monday: S&P Global PMI Manufacturing (Mar), construction spending (Feb), ISM Manufacturing (Mar)
- Tuesday: Durable orders (Feb), factory orders (Feb), JOLTS Job Openings (Feb)
- Wednesday: ADP Employment Survey (Mar), trade balance (Feb), PMI Composite (Mar), S&P Global PMI Services (Mar), ISM Services PMI (Mar)
- Thursday: Weekly initial and continuing unemployment claims, GDP (Q4)
- Friday: Hourly earnings (Mar), average workweek (Mar), manufacturing payrolls (Mar), nonfarm payrolls (Mar), March Employment, consumer credit (Feb)
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