US equities sank ahead of the keenly anticipated non-farm payroll tonight and next week’s Consumer Price Index (CPI). Markets are expecting a 225k increase in payrolls in February compared to the 517k in the prior month while average hourly earnings are expected to rise 0.3% month on month. This suggests that the job market will continue to remain tight, and inflation appears to remain sticky.
During the congressional testimony held earlier in the week, the Federal Reserve’s Chairman, Jerome Powell, also signaled for higher interest rates than what the central bank policy makers had anticipated leading to a risk-off sentiment in the market. The hawkish tone raised the probability of a 50bps increase in March’s FOMC meeting. Furthermore, December’s “dot-plot” suggesting a terminal rate of 5.1% would likely see upward adjustments, with the current market’s implied Fed fund rate for June at around 5.5%. The $NASDAQ(.IXIC)$ fell by -2.1% while $S&P 500(.SPX)$ corrected by -1.8% overnight.
China’s “two-session” concluded last weekend with a conservative guidance for China’s 2023 GDP growth at 5% by Li Keqiang as it bows out to incoming premier Li Qiang. The external environment remains uncertain given the slowdown in the global economy while the real estate sector still recovers gradually. The latest CPI released by the National Bureau of Statistics saw inflation rising marginally by 1% while producer price index was in deflation territory of -1.4%, below market expectations. This suggests that monetary policy is expected to be stable or potentially there could be some scope for stimulus on the horizon. $HSI(HSI)$ corrected by some -4.8% during the week because of the uninspiring outlook from the NPC meeting.
Bank of Japan held interest rates at negative level of -0.1% at Haruhiko Kuroda’s final policy meeting before handing the governor role to Kazuo Ueda. The yield curve control program was also held unchanged during the meeting. Japan remains the last major central bank with negative interest rates to support economic growth with low interest rates. However, concerns are with the sustainability of this policy given the country’s fiscal burden, debt-to-GDP ratio, and the sizable holdings of the government bonds which account for over half the total JGB market value. It remains uncertain in terms of the path of transition towards normalizing its monetary policy and the risk of policy misstep could be high and even destabilizing.
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