Markets last week 27/02/2023

United States

The S&P 500 Index experienced its largest drop in 10 weeks due to unexpected inflation and growth events. The index lost around 35% of its gains since October, resulting in negative territory for the Dow Jones Industrial Average in 2023. While communication services and consumer discretionary stocks were hit the hardest, the declines were widespread, and growth stocks only suffered slightly more than value shares. The Cboe Volatility Index (VIX), known as the “fear index,” increased but remained below its mid-December levels. Trading volumes were relatively low most of the week, with markets closed on Monday for the Presidents’ Day holiday.

At the start of the year, there were concerning signs that inflation was picking up pace again, which caused a sharp decline in stocks. On Friday, the Commerce Department reported that its core personal consumption expenditures (PCE) price index, which excludes food and energy, had risen by 0.6% in January, surpassing expectations of a 0.4% increase and marking its largest increase since August. December’s figure was also revised upwards, causing the year-over-year increase in the Federal Reserve’s preferred inflation gauge to rise from 4.6% to 4.7%, the first increase since September. This was higher than the expected decline to 4.3%. In addition, personal spending increased by a solid 1.8% in January, exceeding expectations and representing the largest increase in almost two years.

However, other data suggested that rising interest rates had yet to deter both consumers and employers. The University of Michigan’s consumer expectations gauge for February was revised upward to its highest level in over a year, and initial, and continuing jobless claims were below consensus. Sales of new single-family homes reached their highest level since March 2022, despite 30-year mortgage rates being about 2.5 percentage points higher. Nevertheless, some significant retailers reported disappointing earnings and provided cautious guidance during the week, indicating some tightening in household budgets.

As a result of the week’s data, investors’ expectations for the timing and degree of future Federal Reserve rate hikes were greatly influenced. CME Group data showed that futures markets were indicating a probability of about 27% for a half-point (0.50%) increase in the federal fund’s target rate at the upcoming March policy meeting, along with an estimated 38% chance that the terminal rate would reach a target range of 5.50% to 5.75% or more. Conversely, expectations of the Fed cutting rates in the autumn significantly decreased.



Europe’s stock markets declined due to concerns that central banks may continue raising interest rates due to better-than-expected economic data and corporate earnings. The pan-European STOXX Europe 600 Index dropped 1.42%. At the same time, major stock indexes such as Germany’s DAX Index, France’s CAC 40 Index, Italy’s FTSE MIB Index, and the UK’s FTSE 100 Index also experienced losses.

Inflation in the Eurozone slightly decreased to an annual rate of 8.6% in January from 9.2% in the previous month, as confirmed by the latest data. Although Germany’s consumer price growth remained high, the initial estimate was only marginally higher. However, the core inflation measure, which excludes fuel and food prices, increased to 5.3% from 5.2% in December, indicating continued underlying price pressures.

Germany’s economy suffered a steeper contraction in the fourth quarter than expected, raising concerns of a recession. According to the final data, gross domestic product fell by 0.4%, worse than the initial estimate of a 0.2% contraction. The data revealed that household consumption and capital investment were weaker than initially thought.

However, forward-looking indicators suggest that business activity in the eurozone is rising. A survey conducted by S&P Global revealed that private-sector business activity in the eurozone reached a nine-month high in February. The composite Purchasing Managers’ Index (PMI), which measures output from both the services and manufacturing sectors, increased to 52.3 in February from 50.3 in January, indicating an expansion in activity (PMI readings above 50). The increase was driven by stronger service activity and a return to growth in manufacturing output.

In the UK, PMI data from S&P Global/CIPS unexpectedly showed a rise in business activity in both the manufacturing and services sectors in February. The survey indicated that companies only slightly eased prices charged during the month, and many firms mentioned the need to pass on higher wages, food costs, and energy bills.


The Nikkei Index and the broader TOPIX Index in Japan experienced a decline over the week, with the former falling by 0.22% and the latter by 0.18%. Although incoming Bank of Japan (BoJ) Governor Kazuo Ueda made comments that were interpreted as dovish and provided some support to markets on Friday, concerns about the potential impact of further interest rate hikes by the U.S. Federal Reserve outweighed this. Additionally, surging consumer prices put more pressure on the BoJ to scale back its extensive stimulus program. Amidst this situation, the yield on the 10-year Japanese government bond remained around the BoJ’s upper limit of 0.50%. The yen weakened against the U.S. dollar to approximately JPY 135.2, down from about 134.1 at the end of the previous week.

Kazuo Ueda, who is expected to become the next BoJ Governor in April, took a mainly dovish stance during a hearing in the lower house of parliament. He emphasised the need for continuity in monetary policy but acknowledged that the current policy had side effects. Ueda stated that achieving the 2% inflation target sustainably and stably will take time, and given the economic and price situation, it is appropriate to continue with monetary easing.

According to flash PMI data, Japan’s services sector continued to grow in February as the latest wave of the coronavirus pandemic eased, leading to an increase in demand. However, the manufacturing sector’s health worsened, with a significant decline in new orders and production. Additionally, inflationary pressures persisted at high levels throughout the private sector.


After three weeks of losses, Chinese stocks rebounded due to hopes for increased regulatory support despite concerns over high tensions with the U.S. In local currency terms, the Shanghai Stock Exchange Index rose 1.34% and the blue-chip CSI 300 gained 0.66%. Conversely, Hong Kong’s benchmark Hang Seng Index fell 3.43% due to worries over the strength of China’s economic recovery and a stronger U.S. dollar.

Following the release of strong U.S. inflation data on Friday, the yuan currency dropped to a seven-week low against the dollar. This caused concerns that the Federal Reserve may continue raising interest rates. The deteriorating U.S.-China relations also impacted the yuan, with reports that the U.S. plans to increase the number of troops helping train Taiwanese forces. The U.S. has heightened its presence around the island to guard against a possible invasion by China, which is Taiwan’s largest weapons supplier.

As expected, the People’s Bank of China (PBOC) kept its benchmark one-year and five-year loan prime rates steady for the sixth straight month. The decision appears to be due to the signs of economic growth that have emerged after Beijing lifted pandemic restrictions in December, resulting in a set of better-than-expected indicators, which may have reduced the need to loosen monetary policy.

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