Weekly Market & Economic Recap (Week of February 6, 2023)

• The U.S. posted its largest trade deficit on record last year, as global demand weakened amid high inflation, climbing interest rates, disruptions due to the Ukraine war and the pandemic’s continued effects. America’s imports exceeded its exports by $948.1 billion in 2022, up 12.2% from 2021, the Commerce Department said Tuesday. (Wall Street Journal, February 7, 2023, https://www.wsj.com/articles/u-s-imports-rose-in-december-partially-offsetting-weakening-global-trade-11675778079?mod=economy_more_pos5)

• Fed’s Jerome Powell braces for longer inflation fight amid hiring surge. Process of lowering inflation to goal of 2% is likely to take ‘quite a bit of time’. (Wall Street Journal, February 7, 2023, https://www.wsj.com/articles/feds-jerome-powell-to-address-economic-outlook-with-hiring-surge-in-spotlight-11675781503?mod=economy_more_pos4)

• The S&P 500 wiped out a rally of almost 1%. Options traders continued piling into bets targeting a 6% Federal Reserve peak rate, nearly a percentage point higher than consensus. The two-year yield traded near 4.5%, and earlier pushed above the 10-year rate by the widest margin since the early 1980s — a sign of flagging confidence in the economy’s ability to withstand additional tightening. (Bloomberg, February 8, 2023, https://www.bloomberg.com/news/articles/2023-02-08/asia-stocks-face-declines-as-wall-street-sells-off-markets-wrap)

• Barkin says Fed needs to ‘stay the course’ in inflation fight. Central bank has ‘a ways to go’ to curb price growth, he says. Inflation is likely past its peak but is still elevated. (Bloomberg, February 9, 2023, https://www.bloomberg.com/news/articles/2023-02-09/barkin-says-fed-needs-to-stay-the-course-in-inflation-fight?srnd=economics-v2)

• Applications for US unemployment benefits rose for the first time in six weeks but remained historically low, underscoring the resilience of the job market despite mounting economic uncertainty. (Bloomberg, February 9, 2023, https://www.bloomberg.com/news/articles/2023-02-09/us-jobless-claims-pick-up-for-the-first-time-in-six-weeks)

• Charles Schwab Corp. analysts Liz Ann Sonders and Kevin Gordon said the ideal outcome, from the Fed’s and investors’ point of view, would be for the rolling recession to continue. If that were to happen, the weakness in the economy would extend into the service sector, and the hot job market would cool, even as housing and manufacturing started to stabilize and then turned up. This scenario would allow the US expansion to continue while paving the way for a further fall in inflation. (Bloomberg, February 9, 2023, https://www.bloomberg.com/news/articles/2023-02-09/what-is-a-rolling-recession-us-could-escape-economic-pain?srnd=economics-v2)

• Credit markets are poised for a gut check after 10% rally. Barclays strategists warn investors to not get complacent. Also, the dismantling of Libor is forestalled in loan market. (Bloomberg, February 11, 2023, https://www.bloomberg.com/news/articles/2023-02-11/credit-markets-are-poised-for-a-gut-check-after-10-rally?srnd=economics-v2)

• Alphabet’s $100 billion stock swoon shows AI stakes are rising. AI frenzy has finally made its way to Alphabet and Microsoft. Alphabet’s stumble sent the stock down more than earnings miss. (Bloomberg, February 9, 2023, https://www.bloomberg.com/news/articles/2023-02-09/alphabet-s-googl-100-billion-stock-swoon-shows-ai-stakes-are-rising?srnd=markets-vp)

• Consumer giants such as Unilever and Nestle are walking away from less profitable product lines to make their supply chains more efficient overall, even if it means taking a hit to sales. (Bloomberg, February 9, 2023, https://www.bloomberg.com/news/articles/2023-02-09/consumer-giants-like-unilever-sacrifice-sales-by-scrapping-product-lines?srnd=markets-vp)

• Stocks in Asia headed for declines Friday after US equities fell for a second day and Treasury yields climbed as investors began to adjust for the prospect of higher interest rates as the Federal Reserve battles inflation. (Bloomberg, February 9, 2023, https://www.bloomberg.com/news/articles/2023-02-09/asia-stocks-face-pressure-as-rates-outlook-sours-markets-wrap?srnd=markets-vp)

• U.S. commerce with China is on the rise, despite escalating national-security tensions over matters such as last week’s downing of a suspected Chinese surveillance balloon. U.S. imports of goods from China totaled $536.8 billion in 2022, a 6.3% increase from the prior year and close to the record $538.5 billion reached in 2018, the Commerce Department said earlier this week. U.S. exports to China grew 1.6% to $153.8 billion last year, pushing the total commerce between the two countries to a record $690.6 billion. (Wall Street Journal, February 9, 2023, https://www.wsj.com/articles/u-s-china-tensions-are-high-so-is-commerce-between-the-nations-11675920444?mod=economy_lead_story)