Last Week Review

Global equities fell 3.5% last week on the collapse of U.S.-based Silicon Valley Bank and the resulting takeover of the bank by regulators on Friday. The developments on Friday overshadowed investor concerns earlier in the week about steeper Federal Reserve rate hikes. The two-year Treasury yield fell 0.27% to 4.59% and the 10-year yield declined 0.25% to 3.70%.

A 0.50% Fed Rate Hike in Play for March

Fed Chair Jerome Powell told Congress last week that the Fed may step up the pace of rate hikes again if the strength of the economy were to warrant it, meaning a potential 0.50% rate hike later this month. Signs of economic strength, and upward revisions to previous releases of economic indicators, show inflationary pressures have surpassed what the Fed projected last month, Powell noted. Following his comments, U.S. equities declined about 1.5%, the Treasury curve further inverted and futures contracts showed expectations of a higher peak federal funds rate. However, futures declined sharply on Friday with Silicon Valley Bank developments.

U.S. Added More Jobs Than Expected in February

The U.S. added 311,000 jobs in February, higher than the 215,000 expected but below the 504,000 jobs added in January. The unemployment rate ticked up to 3.6%, slightly higher than expected, from 3.4% in January. Wage growth accelerated to 4.6% year-over-year, slightly below expectations but up from 4.4% . The labor market remains strong, potentially supporting continued high inflation.

Reserve Bank of Australia Hikes Rate

The Reserve Bank of Australia increased its cash rate by 0.25%, as expected, while the Bank of Canada and Bank of Japan made no policy changes. Haruhiko Kuroda oversaw his last meeting last week as Bank of Japan governor. Kazuo Ueda has been nominated to replace him.

China Sets Conservative 2023 Economic Growth Target

China kicked off its annual legislative sessions last week, including the National People’s Congress. The Congress signaled no major change to the relatively conservative economic approach from last year. Specifically, it set a 2023 economic growth target to around 5%, lower than the prior year’s target of “around 5.5%.” The Congress signaled a focus on domestic demand, national security and technology development.

This Week Preview

U.S. Inflation Expected to Slow

U.S. inflation is expected to decelerate to 6.0% year-over-year in February from 6.4% in January, based on the U.S. Consumer Price Index report scheduled for release on Tuesday. Core inflation, which excludes more volatile food and energy prices, is expected to fall to 5.5% from 5.6%.

ECB Likely to Hike Rate by 0.50%

The European Central Bank is expected to announce on Thursday a 0.50% hike on the back of strong economic growth and inflation. The estimated peak policy rate has increased to around 3.8% from 3.5%. After falling to just above 2% in January, the 10-year German bund yield has increased about 0.50% to 2.50%.

A Check on China’s Progress with Economic Reopening

China is scheduled to release this week fixed assets investment, retail sales and industrial production reports, providing an update on the country’s economic conditions. Helped by China’s economic reopening from strict pandemic lockdowns, emerging market equities got off to a strong start for the year. However, that rally has since lost steam and emerging market equities are now underperforming developed equities year-to-date.

^{Source: Bloomberg for data, news developments and schedule of economic releases. Data as of March 12, 2023.}

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