Weekly house view | RIP NIRP

Weekly house view | RIP NIRP

The CIO's view of the week ahead.

The week in review

Last week was a poor one for US equities as inflation data caused market participants to scale back their expectations for rate cuts. Economically sensitive US small caps were especially hard hit by the rise in bond yields, with the Russell 2000 returning -2%[i] (in USD) compared to the S&P 500’s -0.9%[ii] (in USD). Also noteworthy was the decline in the Topix (down 2%[iii] in yen), reflecting increased speculation that the Bank of Japan will soon abandon its ultra-loose monetary policies. The volatile Chinese market had a good week (the MSCI China rose 3.2%[iv] in USD) on hopes that the country might drag itself out of deflation. Bond yields rose in the US and Europe, but it was noticeable that Bund yields rose much more than Italian yields, meaning the spread between the two sank to their lowest level in two years. Gold prices came off the boil in response to higher US yields, but copper continued to forge ahead. The pull-back in expectations for Fed rate cuts meant the US dollar had a good week.

Geopolitics

President Vladimir Putin claimed a landslide election victory in Russia, securing his grip on power despite western moves to impose sanctions on Moscow. In other tensions between big powers, US legislators moved to ban a Chinese-owned social media platform and US President Joe Biden expressed opposition to a Japanese takeover of a US steelmaker.

Key data

The US consumer price index (CPI) rose 0.4% in February from the month before and at an annual rate of 3.2% (up from 3.1% in January). The annual core CPI declined slightly to 3.8% from 3.9%. The US producer price index (PPI) rose 0.6% month on month in February and by 1.6% year on year (up from 1.0% in January). Retail sales in the US rose 0.6% in February on a month earlier, a lower number than expected. Chinese CPI rose at an annual 0.7% in February, the first time in four months the index was positive. But China’s PPI declined 2.7% year on year in February, the 17th consecutive month of contraction. The ‘shunto’ negotiations in Japan saw workers at large firms offered an annual wage increase of 5.28%, the biggest pay rise since 2013. Japan’s 4Q23 GDP was revised to a year-on-year figure of +0.4% and to a quarter-on-quarter rate of +0.1% meaning the country avoided a technical recession.

[i] Source: Pictet WM AA&MR, Thomson Reuters. Past performance, Russell 2000 (net 12-month return in USD): 2019, 25.5%; 2020, 20.0%; 2021, 14.8%; 2022, -20.4%; 2023, 16.9%.
[ii] Source: Pictet WM AA&MR, Thomson Reuters. Past performance, S&P 500 Composite (net 12-month return in USD): 2019, 31.5%; 2020, 18.4%; 2021, 28.7%; 2022, -18.1%; 2023, 26.3%.
[iii] Source: Pictet WM AA&MR, Thomson Reuters. Past performance, TOPIX (net 12-month return in JPY): 2019, 15.2%; 2020, 4.8%; 2021, 10.4%; 2022, -5.1%; 2023, 25.1%.
[iv] Source: Pictet WM AA&MR, Thomson Reuters. Past performance, MSCI China (net 12-month return in USD): 2019, 23.7%; 2020, 29.7%; 2021, -21.6%; 2022, -21.8%; 2023, -11.0%.
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