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The US stock market ended Tuesday's trading lower amid negative dynamics from the consumer services, technology, and industrial sectors. Concerns over higher interest rates were again the main cause for concern. At Tuesday's stock market close, the Dow Jones Index (US30) decreased by 2.06%, and the S&P 500 (US500) lost 2.00%. The Nasdaq Technology Index (US100) fell by 2.50% yesterday.

According to a preliminary report from S&P Global, the US PMI rebounded for the second month, rising to 50.2 from 46.8, beating expectations. Manufacturing business activity rose from 46.9 to 47.8, while the service sector increased from 46.8 to 50.5, returning to growth territory.

Walmart (WMT), the largest US retailer, issued gloomy forecasts for 2023, but it hasn't affected the company's stock much. Home Depot, Inc. (HD), the home improvement retailer, also issued a lower-than-expected earnings forecast due to higher supply chain costs and weak demand. Home Depot shares fell more than 5% on the report. Investors had hoped that retail earnings would offer some clues that the Federal Reserve was close to completing an interest rate hike. But the latest economic data suggests that the Fed still has room for 1-2 rate hikes. Perhaps today's FOMC minutes will provide more concrete clues on that point.

According to JPMorgan strategists, it is too early to talk about a recession after the Federal Reserve's aggressive campaign, especially since the impact of monetary policy on the economy may have a lag of one to two years.

In Canada, inflationary pressures continue to decline. The latest data showed that the annualized consumer price index fell from 6.3% to 5.9% (forecast 6.1%). Core inflation, which excludes food and energy, fell to 5.0% from 5.4% (5.5% forecast). On the back of such data, the Bank of Canada is not likely to raise interest rates further so as not to create additional pressure on the economy.

Equity markets in Europe were mostly down yesterday. German DAX (DE30) was 0.52% lower, French CAC 40 (FR40) fell by 0.37%, Spanish IBEX 35 (ES35) decreased by 0.34%, and British FTSE 100 (UK100) was 0.46% lower.

The main thesis of ECB head Christine Lagarde yesterday:

• The ECB intends to return inflation to 2%;
• How high the rates will depend on new data on inflation and the labor market;
• ECB intends to raise rates by 50 bps in March;
• There is no wage-price spiral in the Eurozone.

With strong economic data on business activity in the manufacturing sector, especially in the services sector, a 0.5% rate hike at the next meeting is almost a done deal for the ECB. That said, new rate hikes are also expected in May. With the US Fed likely to raise rates by 0.25% in March and 0.25% in May, the gap between the Fed and ECB rates will narrow, strengthening the European currency in the medium term.

Traders increased bets on a 0.25% Bank of England rate hike at the next meeting after the UK Manufacturing PMI rose to 49.2 from 47.2 last month (forecast 47.5). And in the services sector, the PMI returned to recovery territory, from 48.7 to 53.3 (forecast 49.2).

Putin's speech yesterday indicated a further escalation of the war. The day after US President Joe Biden's surprise trip to Kyiv, Vladimir Putin prepared a speech for his citizens. Putin's speech did not hint at any policy change or immediate economic or political constraints on Russia's ability to wage war. He repeated the largely familiar grievances that Russia is fighting a Western conspiracy to destroy it. It was also revealed yesterday that China would submit its proposal for peace talks between the two sides by the end of the week. But given that China is a strategic partner of Russia, Western leaders do not expect anything positive regarding Ukraine.

Asian markets were mostly down yesterday. Japan's Nikkei 225 (JP225) decreased by 0.21%, China's FTSE China A50 (CHA50) gained 0.02%, Hong Kong's Hang Seng (HK50) ended the day down by 1.71%, India's NIFTY 50 (IND50) lost 0.10%, and Australia's S&P/ASX 200 (AU200) ended the day slightly negative by 0.21%.

As expected, the Reserve Bank of New Zealand (RBNZ) raised the official monetary rate by 50 basis points. The rate rose from 4.25% to 4.75%, a 14-year-high. Also, the central bank said it expects further tightening as inflation remains too high.

• S&P 500 (F) (US500) 3,997.34 −81.75 (−2.00%)
• Dow Jones (US30)33,129.59 −697.10 (−2.06%)
• DAX (DE40) 15,397.62 −79.93 (−0.52%)
• FTSE 100 (UK100) 7,977.75 −36.56 (−0.46%)
• USD Index 104.22 +0.36 (+0.34%)

Important events for today:

• Australia Wage Price Index (m/m) at 02:30 (GMT+2);
• New Zealand RBNZ Interest Rate Decision at 03:00 (GMT+2);
• New Zealand RBNZ Monetary Policy Report at 03:00 (GMT+2);
• New Zealand RBNZ Press Conference at 04:00 (GMT+2);
• German Consumer Price Index (m/m) at 09:00 (GMT+2);
• German IFO Business Climate (m/m) at 11:00 (GMT+2);
• US FOMC Meeting Minutes at 21:00 (GMT+2).

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