Weekly Market Wrap 03/03/2023

Bank of England governor Andrew Bailey surprised markets in a speech on Wednesday, hinting at a potential change in interest rate direction. European CPI data offered an upside surprise, whilst US consumer confidence surprised to the downside. 

UK Market   

The UK market ended the week higher. Bank of England governor Andrew Bailey gave a speech on Wednesday, telling markets that the assumption that the central bank will continue raising interest rates is wrong. Bailey said that BoE policymakers had changed their previous view that further rate hikes would be required. These comments came after recent upside surprises for inflation in both the US and Europe, whilst the UK has seen inflation consistently fall after peaking in October 2022. Markets are currently pricing in a 25bps increase at the BoE’s March meeting. UK house prices fell at the fastest pace seen in over a decade in February, contracting 1.1% YoY as higher mortgage rates and continued pressure on UK consumers have repeatedly pushed demand for homebuying lower. The UK and the EU this week announced a new agreement for Northern Ireland, reducing the number of checks and paperwork required for goods moving from Britain to Northern Ireland.  

US Markets 

The S&P 500 is currently ending the week flat at 3,981 and the NASDAQ is up 0.63% at 12,044. US Consumer Confidence for February came in significantly below expectations (102.9 vs 108.5 est.). The unexpected fall was driven by persistent high inflation, with concerns mainly coming from lower-medium income households. The confidence data vastly contrasts with US consumer spending, which increased by 1.8% in January. Jobs data on Thursday added to fears of higher rates, as a continued decline in initial jobless claims indicates a persistently strong labour market and hints that the economy could survive higher rates for longer.  

European Markets  

The Euro Stoxx 50 is currently up 2.43% at 4,280, the DAX is 1.86% higher at 15,492, whilst the CAC 40 has gained 2.12% to 7,340.  

Inflation eased only slightly from 8.6% to 8.5% against estimates of 8.3% as core inflation actually rose from 5.3% to 5.6%. ECB President Christine Lagarde has indicated a 0.5% interest rate rise at its March 16 meeting, and analysts expect more rate rises after that. PMI data showed that the recovery in euro zone business activity gathered pace as growth accelerated in the services industry. 

Fixed Income  

Yields on the US 10-Year rose to 4.00% this week as economic data including producer prices and jobs data hints that further rate increases may be needed. The UK 10-Year yield increased to 3.85%, despite Andrew Bailey’s comments. 

Commodities 

Brent Crude was up 2.00% this week at $85 per barrel, gaining on optimism over a recovery in Chinese demand, despite growing recession concerns in the US and Europe. 

The Week Ahead   

Monday – European Retail Sales 

Tuesday – RBA Interest Rate Decision  

Wednesday – European GDP 

Thursday – China CPI 

Friday – UK GDP  

*Price changes as of last week’s close unless stated otherwise.