Stock indexes end February with losses but the S&P 500 and Nasdaq remain in positive territory for the year.

Investor attentions remain mostly focused on economic data and how it will impact the Federal Reserve's upcoming moves.

One key thing that the Fed is hoping rate hikes will accomplish is to cool off the housing market but data this week has revealed that willing buyers are still plentiful. They were snapping up homes during a brief pullback in mortgage rates during December and January, which coincided with the ongoing slowdown in home price gains.

The S&P CoreLogic Case-Shiller national home price index showed prices fell in all 20 cities in December, with a median decline of -1.1%. What's more, for all 20 cities, year-over-year gains in December of +4.6% were lower than November's median gain of +6.8%. The full-year 2022 gain of +5.8% is also a substantial slowdown from the record +18.9% gain in 2021.

The fall in home prices is exactly what the Fed wants to see though many experts remain unconvinced that prices will fall much further from here.

As FHFA housing analysts note, "the negative pressures of higher mortgage rates and high home prices continue to be offset by historically low inventory." Buyer activity does seem to be closely following mortgage rates.

Since the January rebound in home buying, mortgage rates have shot up to near 7% again and mortgage applications have subsequently plunged to a 28-year low. In fact, I'm starting to hear of more mortgage brokers, realtors, home inspectors, and appraisers looking for new jobs.

While inflation pressures may be coming out of the housing market, it could be getting shifted to other sectors.

The big data highlight today will be ISM Manufacturing, which is expected to remain in contraction territory for a fourth straight month. Investors are more concerned with the "prices paid" component, which unexpectedly shot up more than +5 points in January, breaking a nine-month streak of declines.

Manufacturers also continued reporting trouble finding skilled labor, which has kept hiring and wages elevated. Construction Spending is also due today.

On the earnings front, highlights today include Dollar Tree, Lowe's, NIO, Salesforce, and Snowflake.

It's also worth mentioning that Tesla will hold its "Investor Day" event today with several big announcements anticipated, including the launch of an affordable EV in the $25,000 to $30,000 range.

Rising Inflation in France and Spain Again Fuelomg Tears of More ECB Rate Hikes: Inflation rebounded in France and Spain in February, sending European governments’ borrowing costs up as doubts increased over how quickly the European Central Bank will stop raising interest rates. French consumer prices rose 7.2% in the year to February, driven to the highest rate since the euro was launched in 1999 by faster increases in food and services prices. Economists polled by Reuters had expected French inflation to stagnate at January’s 7% level. The figures suggest eurozone inflation may prove more persistent than hoped. Source Financial Times

Elon Musk Is Once Again the World's Richest Billionaire: Elon Musk is the top dog once again, becoming the world’s richest man due to a recent surge in Tesla stock. On Tuesday, Musk was worth $187 billion, a rise of +$7 billion from Monday, according to the daily Bloomberg Billionaires Index. Tesla shares have soared almost 70% in the year to date, though the electric-vehicle manufacturer’s stock is still down -23% in the last 12 months. So far this year, the Twitter and SpaceX CEO added $50 billion to his wealth. He’s overtaken Bernard Arnault, the chairman and chief executive of LVMH Moet Hennessy Louis Vuitton, who is worth $185 billion. All eyes are now on Tesla’s investor event today which could move the stock either way as the EV maker is expected to introduce a cheaper third-generation car model. Source MarketWatch

Domestic Renewable Diesel Capacity Could More Than Double Through 2025: Based on several announcements for projects that are either under construction or could start development soon, U.S. production capacity for renewable diesel could more than double from current levels by the end of 2025. Two factors behind growing U.S. capacity are rising targets for state and federal renewable fuel programs and biomass-based diesel tax credits. The Inflation Reduction Act of 2022 extended the biomass-based diesel tax credits through 2024. U.S. renewable diesel production capacity was estimated at 170,000 barrels per day, or 2.6 billion gallons per year, at the end of 2022. Although it is expected that some announced projects will be delayed or canceled, if all projects begin operations as scheduled, U.S. renewable diesel production capacity could reach 384,000 b/d, or 5.9 billion gal/y, by the end of 2025. Source EIA

M2 Money Supply Drops By the Most on Record: M2 money supply just experienced its largest year-over-year decline on record. Meaning the Federal Reserve's interest rate hikes combined with the tightening of the Fed’s balance sheet appear to be having their intended effect. M2 calculates the aggregate currency and coins held by banks, travelers’ checks, balances in retail money-market funds, savings deposits, and more. Data for January, released Tuesday afternoon, showed a negative growth rate of 1.7% versus a year ago, the biggest year-over-year decline on record and the first time it has contracted in back-to-back months. December’s money supply growth rate was a negative 1.12% versus the previous year, the first-ever decline. The monthly growth rate has been falling consistently since mid-2021, following a historic peak of 27% growth in February 2021. Although M2 growth rates are declining at a historic pace, levels are still abnormally high: Money supply remains 39% higher than it was before the Covid-19 pandemic. In other words, the amount of liquidity in the system is still significantly elevated, and too much money chasing too few goods and services can spell inflation. Source Barrons

China’s Gas Demand Is a Bigger Worry for Europe Than Russia Cutoff: Europe’s gas supplies could be hit harder by a bigger-than-expected jump in Chinese demand this year than from a complete halt in Russian flows, according to the International Energy Agency. While Chinese demand is the “big unknown,” a bullish scenario could see the country’s liquefied natural gas imports surge as much as 35% in 2023 if costs fall further and its economy expands quickly, the IEA said in a quarterly report. That would boost global competition for the fuel and may push prices back up to the “unsustainable” levels seen last summer, it said. Faster economic growth in China this year should lift its fuel needs, but the big questions is whether that will raise gas purchases to the heights of previous years. Reflecting the uncertainty over China’s demand, the IEA said there’s a difference of 40 billion cubic meters between the lowest and highest estimates of the nation’s net LNG imports this year. The top end of the range would see China’s imports surge well above the previous peak in 2021, the agency said. The estimate gap is equal to about 8% of what Europe may consume this year. Source Bloomberg

Russia Turns to China’s Yuan in Effort to Ditch the Dollar: Russia’s economy, restricted from Western financial networks and the U.S. dollar, has embraced a burgeoning alternative: the Chinese yuan. Energy exporters are increasingly getting paid in yuan. Russia’s sovereign-wealth fund, a war chest to support government spending burdened by battlefield costs in Ukraine, is using the Chinese currency to store its oil riches. Russian companies have borrowed in yuan, also known as renminbi, and households are stashing savings in it. The Chinese currency’s rise inside Russia deepens ties between two countries that have long rivaled each other for global influence but have grown closer amid shared discontent with the West. It also serves China’s long standing but mostly frustrated campaign to make the yuan a more prominent feature of global finance and commerce. Moscow has jettisoned concerns about giving China too much leverage over its economy, said Alexander Gabuev, a senior fellow at the Carnegie Endowment for International Peace. The share of Russian exports paid for in yuan rose to 14% by September, according to data from the central bank. That is up from 0.4% before the start of the war. Russian companies have also turned to the yuan and issued bonds in the Chinese currency worth the equivalent of more than $7 billion last year, according to Refinitiv data. In recent weeks, the yuan-ruble was often the most traded currency pair on the Moscow Exchange based on daily volume. Source WSJ

Value of US Equities Make Up Over 40% of World Total: One of the most potent symbols of American financial dominance is the combined market capitalization of the country’s two biggest stock exchanges⁠—the New York Stock Exchange (NYSE) and NASDAQ⁠. These two major listing hubs dwarf all other exchanges around the world. In fact, the NYSE on its own is larger than the Shanghai, Shenzhen, Japan, and Euronext exchanges put together. One of the key reasons for this dominance is the sheer size of the U.S. economy. With a GDP of over $25 trillion, the U.S. economy is the largest in the world, and American exchanges are home to some of the world’s largest and most valuable companies, including tech giants like Apple, Amazon, and Microsoft. As of January 2023, the value of stocks listed on U.S. exchanges made up 42% of the global total. For much of the 1970s, the U.S. made up more than half of global stock market value. Over the course of the 1980s, the U.S. share of the global total began to dip, driven in part by the asset price bubble in Japan. More recently, the U.S. slice of the equities pie bottomed out temporarily around the time of the Financial Crisis but has been steadily rising ever since. Source Visual Capitalist

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