Weekly market update : A second round of inflation?

As earnings season picks up pace, the week ends on a more cautious note than it began, with hawkish speeches by central bankers and mixed U.S. statistics prompting traders to take some profits. Concerns about the global economic outlook and the extent of future rate hikes are likely to remain in the spotlight and increase market volatility.

Weekly variations*

US 500
3972 -0.66%

SVB FINANCIAL GROUP	+15.32%
MATCH GROUP, INC.	+9.30%
TESLA, INC.	+9.00%
EMERSON ELECTRIC CO.	-10.79%
LUMEN TECHNOLOGIES, ...	-11.53%
MOLINA HEALTHCARE, I...	+0.00%

DOW JONES INDUST...
33375.49 -2.70%

NASDAQ 100
11619.03 +0.67%

FTSE 100
7770.59 -0.94%

GOLD
1926.56$ +0.50%

WTI
81.75$ +2.19%

EURO / US DOLLAR
1.09$ +0.32%

This week's gainers and losers

Gainers:

Emerson Electric launched a hostile takeover bid at $53 per share for National Instruments, as it failed to reach a compromise with the company's management. The bidder has already been rejected with a first approach at 48 dollars. +14.5% for National instruments

The telecom tower operator Cellnex took off on rumors of a takeover bid by American Tower and Brookfield. The stock's decline and the resignation of the company's boss are awakening speculation. +13.9% for the Spanish company.

Ally Financial: The digital financial-services company gained 9% this week after it posted Q4 results that beat Wall Street's expectations, lifted by its insurance operations.

Warner Music Group (+8.5%): The groups's shares rose after it recently announced that it is looking for potential buyers for the sale of the music copyright that it owns

Losers:

Shoe manufacturer DR. Martens ' financial performance at the end of 2022 did not live up to expectations, particularly due to the US slowdown. -35.5%

Wise, the British payment company, may have raised its forecasts, but investors did not like the low sales volumes it posted, which foreshadow a more difficult period. -14.5%

The market takes a dim view of Emerson Electric's hostile bid for National Instruments, mentioned earlier. A hostile bid means, if successful, more difficult synergies to implement. -11.3% for Emerson

Charles Schwabb (-8%): The quarterly results of the American financial group were deemed disappointing by the market. Since last week, investors have been receiving conflicting signals among U.S. banks: some have done well and others have disappointed investors.

Commodities

Energy: The International Energy Agency's (IEA) monthly report was the highlight of this week for oil markets. In broad strokes, the IEA believes that the lifting of health restrictions in China should boost global demand growth as Beijing accounts for nearly half of global demand. Demand is expected to grow by 1.9 million barrels per day in 2023. On this basis, the world will have never consumed so much oil in 2023 with a global demand of 101.7 mbpd. However, the Agency considers China as a wild card, as the speed of its economic reopening can completely upset these forecasts. Northern European Brent and US WTI prices rose moderately to USD 86.50 and USD 81 per barrel respectively. In natural gas, the Rotterdam TTF remains under pressure at around EUR 60/MWh despite the arrival of winter temperatures on the Old Continent.

Metals: Optimism continues in the base metals segment. The Chinese awakening continues to fuel the rise in metal prices. Copper is still trading above USD 9,000 per metric ton and has peaked near USD 9,500. In precious metals, gold is poised for another weekly uptrend at USD 1930.

Agricultural products: Grain prices were little changed this week in Chicago, where bushels of wheat and corn are trading at 730 and 670 cents respectively. It should be noted that traders are closely watching the evolution of crops in Argentina, which is experiencing a major drought at the beginning of the year, causing large losses in corn.

Macroeconomics

Atmosphere: Investors are clinging to two main strands, looser monetary policies on the one hand and the hope of an upturn in China on the other. This is not stopping central bankers in Europe and the US from trying to calm down the prevailing optimism. The market is not listening much, either on the equity or bond side. For the time being, the renewed confidence in China is mainly fueled by investors' intuition rather than by tangible signals, apart from the mechanical improvement of the situation caused by the end of the zero-covid policy.

Currencies: The maintenance of the status quo on Japanese monetary policy has weighed on the yen, which is trading at JPY 129 per USD 1, whereas it was closer to JPY 128 at the beginning of the week. There was no violent movement, however. On the weekly sequence, it is the British pound that stands out. Cable has rallied to 1.2360 USD per GBP as the market anticipates the Bank of England to maintain a tight policy stance where it sees the Fed and ECB wavering on what to do. Wage growth in the UK is higher than elsewhere, raising fears of an inflationary spiral. The euro, meanwhile, is trading at USD 1.0848 and CHF 0.9963.

Rates: At the end of a shortened week in the United States due to Martin Luther King Day last Monday and in the absence of major macroeconomic data, the bond markets continued their decline. After stumbling on 3.90% at the beginning of the month, the US 10-year yield tested its December lows around 3.40/3.35%. This support zone, which also corresponds to the bottom of the ascending channel that has been in place since March 2022, will be the main focus for the next few weeks. For its part, the yield on the German 10-year bond came close to 1.93% without reaching it, at least for the time being, and is once again in contact with its 34-day moving average, a stopper around 2.16%. Next week will be marked by the publication of the U.S. GDP for the fourth quarter as well as household spending. Watch this space.

Cryptocurrencies: Bitcoin has had its best start to the year since 2015, regaining more than 28% since January 1. After experiencing a real explosion the week before, the digital currency is stabilizing by clawing back 1% this week, and is hovering around $21,000 as of this writing. For its part, the overall capitalization of the crypto-currency market is slowly approaching $1,000 billion. On the other hand, although the recent rebound is cheering up crypto-investors, the market is still far from turning things around after a disastrous 2022.

Calendar: In Asia, the week will be marked by the Lunar New Year: mainland Chinese stock markets are closed all week, while Hong Kong will only open on Thursday and Friday. The first Western PMI indicators of the year 2023 are expected on Tuesday. In Germany, the Ifo confidence index for January will be published on Wednesday. The weekend will be dedicated to the United States: first estimate of Q4 2022 GDP and durable goods orders on Thursday, then PCE inflation and second reading of the University of Michigan confidence index on Friday.

A second round of inflation?

After a strong start to the year in Europe and Asia and a rather positive one in America, the markets took a slight nosedive at the end of the week. And for good reason: while the market was hoping to be done with inflation, central bankers fear a second round of inflation relayed by services. The hawkish policy could thus last longer than expected, with Fed official James Bullard even talking about raising key rates to 7%. The long-awaited pivot may not happen immediately. The fundamental question in 2023 will be the ability of central banks, particularly the Fed, to curb inflation while achieving a soft landing for the economy.

Things to read this week

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*The weekly movements of indexes and stocks displayed on the dashboard are related to the period ranging from the open on Monday to the sending time of this newsletter on Friday.
The weekly movements of commodities, precious metals and currencies displayed on the dashboard are related to a 7-day rolling period from Friday to Friday, until the sending time of this newsletter. These assets continue to quote on weekends.

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