Stormy Xmas Weather-Scrooged
Inflation Watch:
Equity markets were down last week as investors remained worried about slower economic growth and a deteriorating profit outlook for 1st half 2023 as the Fed and other global central banks remain on inflation watch. According to Bank of America/Merrill Lynch, global equity outflows totaled a record $41.9 billion in the week of December 21st, as investors accelerated year-end tax loss selling at the same time dividend distributions from ETFs and mutual funds hit.
Consumer spending in the US came to a screeching halt in November after an earlier-than-usual start to the holiday shopping season. Spending in total barely rose but fell after adjusting for pricing inflation. Demand for dining and hotel services was fully offset by shrinking demand for goods led by lower new auto sales. Retailers have been cranking up discounts.
Late last week, hedge fund legend David Tepper gave a rare interview on CNBC, expressing caution citing the European Central Bank’s President Christine Lagarde, late, full-hawk inflation fight pivot. Her early Thursday, December 15th morning speech and actions set forth a rapid and panicky selloff in European sovereign debt markets that week.
Markets in Asia were open on Monday and traded higher as China-related equities led gains. China released new guidelines relaxing its zero-Covid policy.
Strategists at Goldman Sachs expect the Fed to raise rates by 25bp rate hikes in February, March, and May, and then to hold the funds rate at 5-5.25% for the rest of 2023. If the growth data continues to disappoint and the inflation data continues to decline, we expect this schedule will likely prove more aggressive than what the Fed actually delivers in the first half of 2023.
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