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Equities saw gains last week as systematic banking fears abated, and soft PCE (Personal Consumption Expenditures) inflation data was released. The S&P 500 gained 3.48%, the Dow Jones 3.22%, and the NASDAQ 3.37%. Bond Markets fell, in general, with the Bloomberg Agg ending -0.52%. Alternatives continued to be mixed in the flight to safety, with Bitcoin futures up 2.01%, gold down -0.67%, and silver up 3.50%. The story in markets shifted abruptly over the weekend, as OPEC+ announced surprise production cuts to oil output totaling 1.16 million barrels per day. This drove oil prices sharply higher and bond yields lower on concerns the move will increase inflationary pressures in energy. The production cuts are scheduled to start in May.
Banking uncertainty continued last week, but we saw fears of regional bank contagion diminish. With deposit savings shifting more into money market funds and other short-term cash accounts for the increased yield, banks are finding deposit costs increase as they compete for customers.
Last week, markets focused on the PCE economic print, the preferred inflation measure for the FED. The PCE print came in light with year-over-year the headline PCE deflator at 5.0% vs 5.1% consensus and the year-over-year Core PCE deflator at 4.6% vs 4.7%. One key and important difference in PCE deflator vs CPI as measures of inflation is the PCE metric allows for shifting consumer preferences from name-brand goods to generic substitutes. This often happens as prices rise, so PCE is seen as capturing a more representative consumer impact of inflation. Personal Income met consensus at 0.30%, showing continued wage growth. 2022 Q4 GDP was released last week coming in at 2.6% seasonally adjusted, quarter-over-quarter—a miss of 0.1% to the consensus estimate of 2.7%. Pending Home Sales month-over-month came in as a sharp surprise at +0.8% versus expectations of -3.0%, which shows a more robust than expected housing market.
In geopolitical events, former President Donald Trump was indicted on 34 charges related to a “hush money” scandal. Finland officially joined NATO, having been approved by all members, in a move denounced by Russia. In France, unrest continues, as demonstrations continue across the country complaining about the pension age increase. So far, over 1,000 first responders have been injured. French President Emmanuel Macron is slated to visit China this week for discussions on trade and the war in Ukraine.
As market outlooks provide glimpses of hope, we are also seeing some light in the form of emerging information we will incorporate to charter our course. This week is truncated, as markets observe Good Friday, which will hopefully serve as a reminder to us that markets are not the most important thing on this earth. “For God so loved the world that he gave his one and only Son, that whoever believes in him shall not perish but have eternal life” (John 3:16).
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