Pictet Group
Weekly house view | RIP NIRP
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.