February 5, 2023

Hardwood Paroxysm

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Piazza Avari and Europe perform well after US data, Milan closes at +1.4%

Positive closing of European stock exchanges and Piazza Affari, also supported by the positive trend of Wall Street after employment data in December. The Ftse Mib ended up 1.4% at 25,180 points, with particular buys from Saipem (+6.2%), Interpump (+2.7%) and Bper (+2.6%). On the other hand, Diasurin (-0.6%) decreased, and Mediobanca (-0.1%) and Azimut (-0.1%) made slight moves. On bonds, the Btp-Bund spread is at 200 basis points, with the Italian 10-year yield falling to 4.21%.

During the day, attention focused mainly on macroeconomic data, with the release of Eurozone CPI and US jobs report for December.

Eurozone inflation slowed to 9.2% y/y, but the core figure accelerated to 5.2%. The figures should not change the ECB’s restrictive strategy, with which operators continue to expect two rate hikes of 50 basis points at the February-March meetings.

In the United States, 223,000 new jobs were created in December, higher than the 203,000 that analysts had expected. The unemployment rate fell to 3.5%, versus an expected 3.7%, from 3.6% in the previous month (revised from 3.7%). Average hourly earnings posted an increase of 0.3% on a monthly basis and 4.6% on a trend basis, lower than expected. The ISM Services Index dropped surprisingly, dropping to 49.6 points.

Mixed data, which adds to yesterday’s data on private sector employment and unemployment benefits. On the other hand, in fact, the labor market remains strong, with higher-than-expected payrolls and a low unemployment rate. On the other hand, lower-than-expected wage growth is a sign of partial easing of inflationary pressures. The latter factor could allow the Fed more freedom in interest rates.

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In any case, the central bank will continue its monetary tightening, as has been repeatedly indicated by its officials. Atlanta Federal Reserve Chairman Rafael Bostick made it clear that “there is still a lot of work to be done” to tame inflation. However, James Bullard of the Federal Reserve Bank of St. Louis, who is no longer a voting member of the FOMC, said the cost of money is getting close enough to constraining territory and that inflation expectations have come down. For now, forecasts point to a peak in rates above 5% (from the current range of 4.25%-4.5%) by the middle of the year.

US bond yields are in sharp decline, with the ten-year note dropping 3.57% (-15 basis points) and the two-year note, which is more sensitive to monetary policy expectations, falling 19 basis points to 4.26%. In the forex market, the euro/dollar exchange rate rose to 1.06. Oil is bouncing back from recent declines as Brent crude rises from $80 a barrel, while natural gas in Europe stands at €69/MWh.

The main event next week will be the release of US inflation data for December on Thursday. Having posted +7.1% yoy in November, expectations point to a further slowdown in consumer prices to +6.7%, with the core figure expected to decline from +6% to +5.7%.

Among other data, those related to industrial production of major European economies, German GDP for 2022 and Chinese figures for producer and consumer prices for December stand out.

For central banks, focus on speeches on Tuesday by Jerome Powell, Chairman of the Federal Reserve, Andrew Bailey (BoE Governor) and European Central Bank member Isabel Schnabel.

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