📑 Research Notes for 2023-02-27
This week, we look at a higher than expected PCE print, caution signs in credit markets, Iraq's acceptance of payment in Chinese yuan, and MSCI's new digital asset indices.
We conduct extensive investment research and share the most interesting content that we come across every week. Here is a curated list of this week’s top observations.
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Fed's Preferred Inflation Gauges Rose in January.
The Personal Consumption Expenditures (PCE) inflation numbers for the month were up 0.6%, which was higher than expected and much higher than the 0.1% seen in December. The year-over-year headline number for inflation was 5.4%, an increase from the previous month. The Core PCE inflation numbers were also up 0.6%, which was double the previous month's increase. Personal income was up 0.6% in January, while personal spending was up 1.8%. The savings rate also increased to 4.7%. This data could have led to different decisions from the Federal Reserve if they had known about it earlier, and may lead to more aggressive measures by the Fed to bring inflation down.
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Schwab's Kathy Jones Is More Cautious on Credit Than Ever.
Kathy Jones, a fixed income strategist at Charles Schwab, expresses caution about the current state of credit, citing the decrease in volatility and spreads as reasons for concern. She also notes that she is more optimistic about rates and believes that yields may reach 3.85% to 4.00% on the ten-year Treasury note. Jones attributes the tightening of credit spreads to the current market rally and the expectation of a higher terminal rate in 2023. She mentions that high-yield companies have termed out their debt, meaning that rising rates in the near term will not impact them as much. Overall, Jones's perspective is one of cautious optimism towards rates and concern towards credit.
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Iraq To Allow Trade With China In Yuan.
Iraq's central bank has announced plans to allow trade from China to be settled directly in yuan for the first time. This move is aimed at improving access to foreign currency, as the central bank has been taking urgent steps to compensate for a dollar shortage in local markets. The announcement is part of Iraq's efforts to diversify its economy and reduce its reliance on the US dollar, which has been the dominant currency in global trade for decades. The direct trade between China and Iraq using yuan could also boost bilateral economic relations between the two countries.
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MSCI Launches New Taxonomy for Digital Assets.
MSCI has launched its Digital Assets Indexes, which are designed to track the performance of the largest digital assets by market capitalization that use ex-proof-of-work blockchain consensus mechanisms, as well as digital assets associated with technology platforms supporting smart-contracts. This index is the first of its kind from MSCI, and is aimed at providing investment professionals with a transparent and comprehensive view of the digital assets market.
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Last Week’s Market Performance Heatmap
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Curated by Joseph Lu, CFA®
Joseph is the founder and a managing director of Conscious Capital Advisors, as well as a CFA® Charterholder.
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