US market ends on mixed signals

Market Summary

Last week, investors focused on the consumer price and inflation rate in the United States. Investors also concerned over escalating geopolitical tensions between China and U.S.

In the United States, major indexes ended mixed. The consumer prices rose 0.5% in January, versus a revised 0.1% increase in December. On a year-over-year basis, the inflation rate came in at 6.4%, the slowest pace since October 2021. The producer price index rose 0.7% in January, its biggest gain since June, while core producer prices rose 0.5%, the most since May. In Europe, shares rebounded. European government bond yields headed toward recent multiyear highs due in part to hawkish comments from European Central Bank (ECB) policymakers. UK annualized consumer price growth fell for a third consecutive month in January to 10.1%, core inflation eased to a much lower-than-forecast rate of 5.8%.

In Asia, Gross domestic product in Japan expanded 0.6% quarter on quarter on an annualized basis in the three months to the end of December 2022, below consensus expectations. Government nominates Kazuo Ueda as next BoJ Governor. The yen weakened, to around JPY 134.2 against the U.S. dollar, from about JPY 131.3 at the end of the previous week. Chinese equities fell for a third consecutive week as concerns over escalating geopolitical tensions with the U.S. hampered prospects of faster economic growth. The prices for new homes in China remained roughly steady in January, breaking a 16-month slide.

Major News

Wang Yi told the Munich Security Conference on Saturday that China “was not directly concerned in the conflict, but was not standing idly by”, Beijing will put forward a peace proposal to bring an end to the war in Ukraine.

The White House will next week hold secret talks with Taiwan’s foreign minister Joseph Wu and national security adviser Wellington Koo.

The dollar has rebounded from a 10-month low as investors push up their forecasts for US interest rates after signs of stubborn inflation and unexpectedly strong economic activity.

The UK prime minister is seeking to win backing from Northern Irish parties for an outline deal with the EU to resolve the two-year old dispute over the region’s post-Brexit trade.

What Caught our Attention

Amid the misery of war in Ukraine and the global energy crisis, the green transition has speeded up. Last year global capital spending on wind and solar assets was greater than investment in new and existing oil and gas wells for the first time. Governments in America and Europe are spending billions on subsidies for clean tech over the next decade; China is offering juicy incentives, too.

However, some renewables providers are now rethinking their investments, because energy projects are becoming less attractive. Price caps, various taxes and higher interest rates, together with rising costs, are putting them off. Between January 2021 and April 2022 logistical hiccups, post-lockdown rebounds and war-induced disruptions buoyed the prices of everything from shipping to industrial metals. Such costs would be manageable if they could be passed on. But governments are increasingly micromanaging power markets to keep prices low. All in all, if investing is to stay attractive, green power will need to be sold at higher prices than governments would like.

Source: Kredens Capital, T. Rowe Price, Bloomberg, Financial Times, Wall Street Journal, The Economist, Nikkei Asia