Vinod Bhat's Market Pulse - Mar 6, 2023
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US economic data points - robust labour market and consumer spending - have been strong. This has driven yields higher, raised expectations for near-term Fed rate hikes and reduced expectations for rate cuts this year, thereby putting pressure on equity markets.
But Jan data may not be as strong as advertised as it could also have been boosted by large seasonal adjustments. The next two weeks bring US employment and retail sales numbers, where seasonal adjustments reverse.
Good readings could confirm a strong narrative, but disappointments would mean the US economy is not as strong as it is being made out to be. Q4 CY22 earnings numbers were also not that great with S&P500 earnings growth (excluding energy) being negative.
Given this dynamic, the US 2-yr yield fell to 4.86% (from a high of ~5%) & the 10-yr yield fell to 3.96% (from above 4%). And with Treasury Yields retreating from recent highs, S&P500 and Nasdaq were up by 2% and 2.6%, respectively last week.
China has guided for real GDP growth of 5% for CY23 whereas last 15-yr average is ~6.7%. The current recovery has been underwhelming leading to a fall in Chinese equities as well as commodity prices.
In India, we saw a relief rally in the banking sector, especially PSU banks, and broader market also participated. Services activity came in at a 12-yr high with Services PMI at 59.4%.