Daily Market Outlook, February 20, 2023

Asian Markets Recover After A Tepid Start To The Trading Week

Asian equities opened on the backfoot given a mixed handover from Wall Street as investors squared positions ahead of the Friday close and the US Presidents Day holiday today (with the NYSE closed today). Overnight geopolitical concerns were once again at the fore, with North Korea test firing an ICBM and multiple rocket launcher drills, this was coupled with lingering China-US tensions as China warned the US on escalating tensions regarding ‘ballon-gate’ the US countered with its own warnings regarding China providing pro Russian support in the Ukrainian war. The Shanghai Comp and Hang Seng were once again regional outperformers supported by continuing liquidity provisioning by the PB0C.

Today’s data docket is very scant. Eurozone consumer confidence is expected to post its fourth monthly rise in a row, however, the increase is from record low levels. This is the first of several Eurozone surveys for February due this week all of which are expected to show that economic conditions in the region are showing nascent signs of improvement. UK January public finances data, due early Tuesday, will reveal self-assessment income tax returns for the year. Any indication from this that annual borrowing levels will come in below forecasts may lead to more calls for new policy measures in the March Budget. Down under in Australia the central bank will release minutes of its February policy meeting ealy Tuesday, after raising rates by 25bps at that meeting and pointed to the likelihood of further hikes, investors will parse the minutes for signs of further intentions to continue restrictive monetary policy in the first half of this year.

Last week saw an extension of the rebound in market interest rate pricing in the US, this move commenced after the very robust employment report for January, when investors began to see markets actively reprice the terminal rate higher, with Fed officials rhetoric also confirming a sense that higher for longer remains the name of the game, last week's data pointed to a slower decline in inflation and better than expected manufacturing activity reinforced the belief of elevated rates persisting, this week the Fed’s preferred inflation metric, core personal consumer expenditure deflator, will be released and may point to another rise of 0.4% month over month leaving the Fed adrift by 0.17% month over month from achieving levels that would return the US to it’s 2% inflation target.

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