The U.S market continued to show strength and closed up 2.7% for the week as inflation data came in below expectations on Friday causing the major banks to rebound after starting the morning negative. Markets opened down ~1% as some major banks reported Q4 earnings and commented on the uncertainty regarding their 2023 outlook. Today kicked off the Q4 earnings season which will give investors a glimpse into how inflation has weighed on profit margins.
Yields moved slightly lower this week, as the 10yr closed at 3.5% following the release of the CPI data on Thursday that showed inflation up 6.5% YoY which was in line with expectations. Fed officials and economists commented at the end of the week that they support a smaller rate hike next meeting, and they wouldn’t be surprised if the Fed starts talking about pausing in the near future. With all the economic data and mixed comments, the market still expects the Fed funds rate to peak at ~4.9% this year (unchanged from the beginning of the week).
Oil ended the week up over 8%, boosted by optimism over demand from China as they begin lifting COVID-19 restrictions. Trading volumes has climbed on the thought of record-breaking Chinese oil demand along expectations that the Fed will only raise rates by 25bps in February.