A Week of Repricings


A Week of Repricings

Monday, February 27, 2023 By Vincent David-Robin

Last week saw a continuation and an acceleration of the trends of the week before. It was the third week in a row that the S&P closed in the red – something that does not happen very frequently. The week was dominated once again by repricing of interest rate expectations in the US.

The favoured measure of inflation for the Fed – the Personal Consumption Expenditures (PCE) – proved to be higher than expected. That followed the prior release of the Consumer Price Index (CPI) in the previous week, that showed the same thing happen in that week.

Once that data was released, market participants revised the trajectory of rate rises by the Fed. From mid-January till now, rates expectations for 2024 have risen by 125 basis points: from 3.5% to 4.75% – an enormous jump! Markets are now pricing a terminal rate at around 5.4%.

Still, given these substantial repricings, equities are proving resilient. On average, the US equity markets lost 3% last week; and the European ones, 2%. But all equity markets are still up on the year.

This is the first week when fixed income and equity markets are showing a substantial disconnect. If fixed income markets are correct in their assumption of the future path of rates rises then the odds are that economies could go into recession. It is akin to taking away the punch bowl.

The more probable path would be for equities to continue drifting down while interest rates pause at the current level.

Irrespective of outcome, the price action will remain choppy till there is some clarity about inflation.

General disclosure: This material is intended for information purposes only, and does not constitute investment advice, a recommendation or an offer or solicitation to purchase or sell any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Aria Capital Management or any of its related companies to participate in any of the transactions mentioned herein. This material may contain estimates and forward-looking statements, which may include forecasts and do not represent a guarantee of future performance. This information is not intended to be complete or exhaustive and no representations or warranties, either express or implied, are made regarding the accuracy or completeness of the information contained herein. The opinions expressed are subject to change without notice. Reliance upon information in this material is at the sole discretion of the reader. Investing involves risks. Past performance does not guarantee future results. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.


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