The Week in Review
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Russia Suspends Participation in the "New START treaty"
Russian President Vladimir Putin declared Tuesday that Moscow was suspending its participation in the New START treaty, but not entirely withdrawing from the pact yet.
New START's official name is The Treaty between the United States of America and the Russian Federation on Measures for the Further Reduction and Limitation of Strategic Offensive Arms. The New START treaty, signed in 2010 by U.S. President Barack Obama and Russian President Dmitry Medvedev, limits each country to no more than 1,550 deployed nuclear warheads and 700 deployed missiles and bombers. The agreement envisages sweeping on-site inspections to verify compliance.
Speaking in his state-of-the-nation address, Putin also said that Russia should stand ready to resume nuclear weapons tests if the U.S. does so, a move that would end a global ban on nuclear weapons tests in place since Cold War times.
Explaining his decision to suspend Russia's obligations under New START, Putin accused the U.S. and its NATO allies of openly declaring the goal of Russia's defeat in Ukraine. “They want to inflict a ‘strategic defeat’ on us and try to get to our nuclear facilities at the same time," he said, declaring his decision to suspend Russia’s participation in the treaty. "In this context, I have to declare today that Russia is suspending its participation in the Treaty on Strategic Offensive Arms.”
The Russian leader also noted that NATO's statement on New START raises the issue of the nuclear weapons of Britain and France that are part of the alliance's nuclear capability but aren't included in the U.S.-Russian pact.
Russia and the U.S. have suspended mutual inspections under New START since the start of the COVID-19 pandemic, but Moscow last fall refused to allow their resumption, raising uncertainty about the pact’s future. Russia also indefinitely postponed a planned round of consultations under the treaty. Putin on Tuesday challenged the U.S. assertion, alleging that Washington has rejected some Russian requests for visits to specific U.S. facilities. “We aren't allowed to conduct full-fledged inspections under the treaty," he said. “We can't really check anything on their side.”
In a speech commemorating Defender of the Fatherland Day, a Russian holiday that honors the country's armed forces, Putin said Russia will continue to "focus on strengthening the nuclear triad", referring to missiles based on land, sea and in the air. Vladimir Putin announced that his military is prepared to deploy a new
intercontinental ballistic missile system with hypersonic missiles and
new nuclear submarines.
Sources:
https://news.yahoo.com/putin-suspends-russias-involvement-key-112637851.html
https://www.reuters.com/world/europe/natos-stoltenberg-world-more-dangerous-with-russia-suspending-start-treaty-2023-02-21/
https://www.foxnews.com/world/putin-promises-build-up-russia-nuclear-arsenal-backing-out-new-start-treaty-us
https://www.state.gov/new-start/
https://www.state.gov/new-start-treaty-aggregate-numbers-of-strategic-offensive-arms-3/
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Munich Security Conference
The Munich Security Conference attracts heads of state, generals, intelligence chiefs and top diplomats from around the world. With war raging in Europe, the world's foreign policy elite is on edge, and Russia's war in Ukraine dominated discussions. President Volodymyr Zelenskyy of Ukraine set the tone of the three-day conference by urging Western leaders to act rather than talk, calling for the speedy deliveries of weapons and warning of dwindling supplies on the battleground.
This year, the U.S. made its presence at the gathering felt with a record number of delegates, including significant bipartisan and bicameral representation from Congress. But with delegations attending from every continent, beyond Europe and the members of NATO, broader geopolitical issues were at play, both on the conference stage and on the sidelines.
U.S. Vice President Kamala Harris used her speech to accuse Russian forces and their superiors of crimes against humanity in Ukraine, saying that was the conclusion of an investigation by the State Department.
China's top diplomat Wang Yi also dedicated most of his speech to the conflict in Ukraine, stressing he was "deeply worried" about the "long-term effect of this war" and warning against the return of a "Cold War mentality." Wang – who is heading to Moscow after the conference – called for peace talks and asserted that "some forces" have no interest in seeing the war end soon because of "bigger strategic goals than Ukraine." He did not elaborate on who he meant, but the message chimes with claims from Russia that NATO is unwilling to enter into peace talks. He appeared to issue a warning to Moscow, though, by repeating Xi Jinping's recent condemnation of anyone who makes nuclear threats.
Blinken and Wang sat down together on the last night of the conference, in the first high-level meeting between the two countries since the U.S. shot down an alleged Chinese surveillance balloon. In a statement, the U.S. State Department said that Blinken told Wang that the U.S. is not seeking conflict with China but warned him against Beijing providing any material support to Russia, or helping Moscow evade Western sanctions.
While Wang Yi called for peace in Ukraine – without elaborating how to achieve it or what peace in the region means – Europe's leaders committed to investing more in weapons. European Commission President Ursula von der Leyen said member states must work together with the defense industry to scale up the production of munitions for Ukraine.
NATO Secretary General Jens Stoltenberg stressed that, one year since Russia’s full-fledged invasion of Ukraine, President Putin is not planning for peace but for more war. The Secretary General said, "we must give Ukraine what they need to win and prevail as a sovereign, independent nation in Europe."
This year, for the first time since the nineties, Russian officials did not receive invitations to the conference. Organizers also excluded the Iranian government officials because of Tehran's brutal suppression of protests.
Sources:
https://www.npr.org/2023/02/19/1158184942/4-takeaways-from-this-years-important-munich-security-conference
https://www.nato.int/cps/en/natohq/news_212044.htm
https://thehill.com/opinion/congress-blog/3868716-munich-conference-sends-strong-message-of-support-for-ukraine-opposition-to-russia/
https://abcnews.go.com/International/wireStory/defense-minister-finland-join-nato-ahead-sweden-97306166
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Retail Outlook
The retail giants Walmart and Home Depot shared full-year guidance that disappointed investors since a spending slowing down is projected for the year. Walmart's projection predicts adjusted earnings per share of $5.90 to $6.05, which came below estimates. Net sales are predicted to grow between 2.5% and 3%.
Home Depot reported its earnings for Q4 2022 and missed Wall Street's
revenue expectations ($35.83 billion vs. $35.97 billion expected).At the height of the COVID-19 pandemic, the company saw increased
sales as consumers took on more home projects. Now, the company sees
consumers spending their discretionary income on experiences outside the
house. Moving forward, the company expects sales to be approximately
flat for the new fiscal year. The slowdown in the housing market also contributed to lower-than-expected results.
According to the New York Federal Reserve Bank, credit card balances in the U.S. hit a new all-time high of $986 billion. Americans continue to spend, but both Walmart and Home Depot expect spending to stay flat or decline. As prices continue to increase, it is unsurprising that spending would fall among discretionary income.
Home Depot’s stock fell after the report, while Walmart’s stock essentially flatlined as investors digested what the news meant for the economy. Other retail stores are expected to see rough results as earnings continue to be reported.
Source:
https://www.forbes.com/sites/qai/2023/02/22/home-depot-earnings-and-walmart-earnings-may-signal-trouble-for-retail-giants/
On The Economic Front
Economic Data Source: Trading Economics
United States Personal Income
Personal income in the United States rose by 0.6 percent from a month earlier in January 2023, accelerating from an upwardly revised 0.3 percent gain in December but missing market expectations of 1.0 percent growth. The increase in income was led by rising compensation, reflecting private wages and salaries in both services-producing industries and goods-producing industries. Meanwhile, government social benefits were down in January, as a decrease in “other” benefits due to the expiration of the extended child tax credit as well as a decline in one-time refundable tax credits issued by states was partly offset by an increase in Social Security. Disposable personal income surged 2.0 percent in January.
United States Personal Spending
Personal spending in the US jumped 1.8% month-over-month in January of 2023, rebounding from a downwardly revised 0.1% drop in December and beating market forecasts of a 1.3% rise. It is the biggest increase since March of 2021, in a sign consumer spending started the year on strong footing. Within goods, the increase was widespread and led by motor vehicles and parts as well as "other" nondurable goods (led by pharmaceuticals). Within services, the largest contributor to the increase was spending for food services. After adjusting for changes in prices, real personal spending soared 1.1%, rebounding from a 0.3% fall in December.
United States Michigan Consumer Sentiment
The University of Michigan consumer sentiment for the US was revised higher to 67 in February of 2023, the highest since January 2022, from a preliminary of 66.4. The gauge for expectations was revised higher to 64.7 from 62.3 while the current conditions subindex was revised lower to 70.7 from 72.6. Meanwhile, inflation expectations for the year were revised lower to 4.1% from 4.2% in the preliminary estimate and the 5-year outlook was unchanged at 2.9%.
United States PCE Price Index Annual Change
The personal consumption expenditure price index in the United States increased by 5.4% year-on-year in January of 2023, accelerating from an upwardly revised 5.3% rise in the previous month. Prices for goods were up 4.7% (vs 5.1% in December) and prices for services increased 5.7% (vs 5.4%). Food cost went up 11.1% (vs 11.6%) and energy prices increased 9.6% (vs 8.5%). Compared to the previous month, the PCE Price Index rose by 0.6%, the most in seven months.
United States Core PCE Price Index MoM
Core PCE prices in the US, which exclude food and energy, jumped by 0.6% month-over-month in January of 2023, the most since August, following an upwardly revised 0.4% increase in the previous month and above market estimates of 0.4%. The annual rate, the Federal Reserve’s preferred gauge to measure inflation, rose by 4.7% and surpassed market expectations of 4.3%, backing signals from Fed policymakers that interest rates must be higher for longer to tame unsustainable price growth. Meanwhile, the headline figure rose by 0.6% from the previous month, the most since June and the annual rate accelerated to 5.4% from 5.3%.
United States ISM Purchasing Managers Index (PMI)
The ISM Manufacturing PMI fell to 47.4 in January, the lowest since May 2020 at the height of the covid pandemic and below market forecasts of 48. The reading pointed to the third consecutive contraction in factory activity as companies slowed outputs to better match demand in the first half of 2023 and prepare for growth in the second half of the year. Further declines were seen for new orders (42.5 vs 45.1), production (48 vs 48.6) and backlogs of orders (43.4 vs 41.4) while inventories (50.2 vs 52.3) slowed, the supplier deliveries index indicated faster deliveries (45.6 vs 45.1) and the price index increased (44.5 vs 39.4). At the same time, employment (50.6 vs 50.8) rose slightly less but companies are indicating that they are not going to substantially reduce headcounts as they are positive about the second half of the year.
United States Existing Home Sales
Existing home sales in the US which include completed transactions of single-family homes, town homes, condominiums and co-ops declined 0.7% to a seasonally adjusted annual rate of 4.0 million in January of 2023, a twelfth straight month of decreases, and compared to forecasts of 4.1 million. It is the lowest reading since October of 2010. Decreases were reported in the East and Midwest while the South and the West registered increases. The median existing-home sales price increased 1.3% from one year ago to $359,000. The inventory of unsold existing homes grew from the prior month to 980,000 at the end of January, or the equivalent of 2.9 months’ supply at the current monthly sales pace. “Home sales are bottoming out. Prices vary depending on a market’s affordability, with lower-priced regions witnessing modest growth and more expensive regions experiencing declines”, said NAR Chief Economist Lawrence Yun.
A Walk Around the Markets
The yield on the US 10-year Treasury note, seen as a proxy for global borrowing costs, jumped to above 3.94%, its highest level in three months, as a batch of hot economic data strengthened expectations that the Federal Reserve will raise interest rates to a higher level and keep them restrictive for a longer period. Personal spending in the US jumped by 1.8% from the previous month in January, while core PCE prices accelerated above expectations and underscored the Fed’s perception that the fight against inflation is far from over. The data compounded hawkish fears after earlier reports showed that initial jobless claims unexpectedly fell, emphasizing that the US labor market is stubbornly tight and driving investors away from debt instruments.
US Yield Curve
Source: https://www.ustreasuryyieldcurve.com/
US Dollar Index
Source: Trading Economics
The dollar index rose to above 105, the highest in seven weeks after the latest data showed the Fed’s preferred gauge to measure inflation accelerated more than expected in January, supporting the case for further monetary tightening from the Federal Reserve. The latest data showed core PCE prices jumped by 0.6% in January, the most since August, and above market estimates of 0.4%. The annual rate accelerated to 4.7% from 4.6% and surpassed forecasts of 4.3%. On the week, the DXY is up 1%, on track for a fourth consecutive weekly gain. Minutes of the latest FOMC meeting showed that Fed officials noted that upside risks to the inflation outlook remained a key factor shaping the policy outlook and that interest rates would need to move higher and stay elevated until inflation is clearly on a path to 2%. At the same time, the dollar has also benefitted from safe-haven demand stemming from growing geopolitical tensions between the US and China over the war in Ukraine.
Source: Trading Economics
Silver futures traded below the $22 per ounce mark, hovering close to the near-three-month low of $21.6 touched on February 16th as expectations of higher interest rates continued to pressure bullion demand. Hotter-than-expected PMI data in the United States signaled that the economy hadn't slowed, backing forecasts about further funds rate hikes from the Fed. Tight monetary settings also hampered demand for the metal as an industrial input for goods with high electricity conduction needs, mainly reflected in the aggressive declines in solar panel equities. Still, low stockpiles of main commodity exchanges limited the decline for silver.
Opinion Section
Upcoming
In the US, appearances from several Fed officials will be in the spotlight alongside the ISM PMIs release. Investors will also follow GDP growth figures for India, Australia, Canada, Brazil, Turkey and Switzerland, PMIs for China and preliminary inflation data for the Eurozone.
Have a nice week.
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