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Weekly Market Update (February 12, 2023)


This is the worst week this year for both the stock and bond markets. Market is expecting a higher and longer rate hike cycle. Fed peak rate increased from 4.9% to 5.2% after the strong job reports and Powell’s hawkish speech. Equities are under downward pressure because of the repricing of the terminal rate. 10Y treasury yield jumped to about 3.75%, and more traders are betting it will reach 4% in a week based on the options activity.

Oil: Russia plans to cut oil export by 500k barrels per day in the coming month in response to the sanctions. Oil prices are expected to be stronger due to the drop in Russian output and the increase in demand from China reopening.

BoJ: Yen jumped after the news about the next governor of the Bank of Japan would be Kazuo Ueda as he is perceived to be more hawkish than the previous governor. However, part of the gains whipped out after Ueda’s speech about the stimulus (i.e. yield curve control) should stay in place.

PBoC: More than 1 trillion yuan was injected into the financial system by PBoC this week. Overnight repo rate (short-term borrowing costs) dropped from the 2 years high level. Before the retreat, the loan demand was boosted due to the economic recovery, forcing central banks to shift the focus to liquidity management.





S&P 500















*Data as of market close. 5-day change ending on Friday.



Goldman Sachs: Mega-cap tech stocks dropped significantly this week, mainly driven by the disappointment of the product launch of Google. Also, market is expecting the interest rates are potentially moving higher for longer, giving downward pressure to equities. Volatility came back this week with VIX currently above 20.

Morgan Stanley: The recent dynamics in US equity is suggesting a liquidity-driven speculative rebound within a bear market, but not a new bull cycle. Historically, a real bull market can be signaled by the performance of the stock-to-gold ratio. Stocks outperform gold when the companies are truly generating real growth in excess of inflation. The current dynamics is suggesting the opposite, indicating the bear market will continue.

Fixed Income

Morgan Stanley: Bullish investors who are expecting rate cuts this year have been declaring peak in rate since last October. It pushed the 2Y treasury yield down 40bps from the high in the cycle. Also, it fostered the fed fund/2Y treasury yield inversion, which is historically associated with a hard landing.

Nomura: The outlook for rates and risk has changed after the Fed introduced “disinflation” after the Feb hike. We are expecting the move from illiquid alternative assets into liquid fixed income. Constant Maturity Swap (CMS) or other steepener coupons are good tools to capture the benefits from deeply inverted curves.


Goldman Sachs: The probability of recession is down to 25% due to the rapid growth in China and Europe. Economists are forecasting a 2.4% growth globally this year.

Morgan Stanley: Fed confirmed the outlook will be unchanged and no cut this year. The economic data is suggesting a weakening growth, such as retail sales, manufacturing data and CEO confidence.

Credit Suisse: Investors are expecting a soft landing in the US by factoring in the lower inflation despite the tight labor market. Similarly, more better-than-expected news rolls out in other major economies. Europe is proved to be more resilient as energy prices retreated. China's reopening is showing the recovery is faster than expected.


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This newsletter is meant for informational purposes only and is not investment advice. Always consult a licensed investment professional before making important investment decisions. Advertising and sponsorship do not influence editorial content or decisions. Market Hedwig is not responsible for the promises made or the quality or reliability of the products or services offered in any advertisement.


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