Tucker Financial Weekly Market Review: January 20, 2023

Markets last week digested several 4Q earnings calls, a rather busy economic calendar, and an outsized dose of central bank policy speaking engagements from the Fed and ECB. A nice rally on Friday largely offset a fair amount of mid-week selling pressure to leave the S&P 500 down less than 1% on the week, +3.5% in January. Developed (+1.2%) and emerging (+1.7%) equity markets both managed respectable gains aided in part by a weaker USD. Interest rates were slightly lower with 10 yr yields largely unchanged while 2 yr yields fell 8bps to yield 4.14%. Commodity markets were up 1.7% aided by a strong rally in industrial metals and WTI oil closing up 1.8% to close back above $80, a level it hasn’t been able to sustain since mid-November.

• While U.S. equity market trends have yet to break out of a well-established downtrend, international equity markets are exhibiting something different with Europe breaking out in November and the MSCI ACWI ex/US seeing its 50 dma crossing through its 200 dma last week.

• Early (11% reported) 4Q earnings reports aren’t off to a great start with beat rates and magnitudes both below average and earnings contraction of -4.6% and revenue growth of 3.7%.

• Coming off the back of two consecutive losing years in the bond market, yields have fallen in sympathy with falling inflation to begin 2023.

• Wage growth is slowing, disinflation is prevailing, and employment has remained strong but, while great for now, these are not equilibrium trends we can expect indefinitely with demand driven inflation later in 2023 a key focus on the part of policy makers.

• Very hawkish ECB meeting minutes and eight Fed speaking engagements, where officials echoed hawkish remarks, set a clear monetary policy tone, one that is at odds with market expectations.

• While labor market resilience feels contrary to layoff announcements in the technology and banking sectors, their size relative to leisure and hospitality may explain the divergence.

• The Beveridge Curve which illustrates a tight inverse relationship between job vacancies and unemployment may be the most important factor to monitor in 2023 as to whether tight labor markets can be loosened by reducing vacancies rather than increasing unemployment.

• It is likely the looming February 5 EU embargo on Russian refined product imports will lead to larger trade dislocations because, unlike Russian crude oil, which India and China happily absorbed, they are both net exporters of refined product.

• The need for some form of accommodation in China is supported given annual GDP slowed from 8.4% in 2021 to 3.0% in 2022 and q/q GDP slowed from 3.9% in Q3 to 0.0% in Q4 (3.9% y/y to 2.9% y/y).

• CPI in December eased from 7.1% (0.1% MoM) in November to 6.5% (-0.1% MoM) in December. Core also moderated from 6.0% (0.2% MoM) to 5.7% (0.3% MoM).

• December Retail Sales missed expectations for headline (-1.1% vs -0.8%), ex-vehicles (-1.1% vs -0.5%), and ex-vehicles & gas (-0.7% vs -0.1%).

• Weekly jobless claims fell to 190k, lower than the consensus call for a slight increase, pulling the 4-week moving average to an eight-month low of 206k.

• Industrial Production in December came in below expectations for headline (-0.7% vs -0.1%) and manufacturing output (-1.3% vs -0.2%).

• Regional Fed manufacturing indices for Philly (-8.9) and Empire State (-32.9) both registered well into contractionary territory.

• January’s Housing Market Index registered 35, ahead of consensus and above the high end of the range.

• Housing Starts (1.382MM) and Permits (1.330MM) for December registered in the middle of their expected ranges, slightly above and below their spot estimates respectively.

• Existing Home Sales for December fell 1.5%MoM and 34%YoY, registering 4.02MM, slightly ahead of consensus estimates.