Market Update 17th February 2023

Market Wrap

The week ended?February 17, 2023

Monthly employment data (seasonally adjusted) showed job losses of 11,500 in December, a second consecutive monthly decline causing the unemployment rate to jump to 3.7% from 3.5%. While the data was over the Christmas / New Year period seasonal adjustments do need to be considered. To be prudent February data should give a clearer picture. RBA governor Lowe has confirmed that the January data has not changed their stance on interest rates due to the continued tightness of the job market. However, if there were to be another weak job report, their view could change.

The ASX 200 was down 1.17% for the week. Sovereign yields increased for the week, the 2-year up 9bps to 3.49% and the 10-year up 8bps at 3.82%. The Australian iTraxx shifted 8 points higher to 85, which moved closer to the historical average of 86.?An essential metric to monitor this week in Australia will be the wage price index (WPI) on Wednesday which is a significant factor that affects inflation. The Reserve Bank (RBA) would prefer to see yearly wage growth between 4.0-4.5%, but it would not be pleased if it surpasses that range. The RBA maintains that 4.0% wage growth aligns with 2.5% inflation and 1.5% productivity.

Last week’s CPI report in the US confirmed that the Fed is still a good way off from restoring price stability. Headline inflation rose 0.5% in January, the largest monthly rise since October. Fed officials have warned that they still have work to do and may extend the rate hiking cycle longer than expected. The latest inflation data drove yields higher for both 2 -year and 10-year treasury bonds to their highest level in more than three months. On Friday, the 2-year bond's yield rose to 4.61%, while the 10-year bond's yield reached 3.83%, which continues to maintain a yield curve inversion where short-term debt yields more than long-term debt.

US equity markets started the week strong with over 1% gains. However, gave back some of those gains as the week progressed. The Nasdaq ended up 0.6%, the S&P fell 0.28%, and the Dow dropped 0.13%. For the week ahead in the United States, several indicators are competing for attention, such as the announcement of economic growth on Thursday, as well as the personal income and spending report on Friday, which contains a crucial measure of prices or inflation.

Market Data

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