It took a while. Markets had been ignoring the incessant hawkish Fedspeak for some time. A chorus of officials have been proclaiming that rates must go “higher for longer” due to persistent inflationary pressures. But risk assets especially, begged to differ hoping that core inflation would fall sharply in the coming months. With the sticky CPI print and multiple strong data points this month, markets have now bowed to the hawkish noise confirmed by a stronger economy. The dollar bounced firmly and stock markets were subdued.

We’ve seen very sizeable moves in government bond markets. Rising policy rate expectations have been a key driver after the flurry of hot data. The terminal Fed funds rate has shifted towards 5.50%, from around 4.90% in January. But the peak ECB deposit rate has also jumped, not far off 4% from its current policy setting of 2.50%. The UK base rate has also pushed north recently to an end rate near 4.75% by late Q3. Adjusting to higher inflation reminds us of last year. But we are closer to the peak in rates, certainly in the US. That means the global growth story could pick up again going forward as the US slows.

It’s not surprising that gold has turned sharply lower in this tough macro environment. The precious metal has lost around 6% of its value in February, after three consecutive positive months. How high rates will go, above 5.5% and beyond will be key for gold bugs. The monthly bearish engulfing candle doesn’t bode too well. Focus could turn to the 200-day simple moving average as key support at $1776 if the 10-year US Treasury yield moves above 4%.

Major events of the month, in numbers:

*+517,000 Non-Farm Payrolls: We kicked off the month with a mind-boggling headline NPF print. That really set the scene for the burst of hot data releases that followed. Given the softening economic news flow and rising job lay-off announcement before the report, the positive shock was glaring. The amazing job creation also came with another story, as a historic low jobless rate along with modest wage growth meant that employers were able to hire workers without needing to pay up. All eyes will be on 10 March and the next NFP report.

*+0.6% US Core PCE Deflator: This is the Fed’s favoured inflation gauge. We could have used the 0.4% increase reported by the core CPI data, but the more recent number is a big deal. This is way beyond the 0.17% m/m rise which is cited by economists as needed through several months to bring inflation back to the Fed’s 2% target. Robust inflation means markets have priced in three 25bp rate hikes in March, May and June. There is currently a one in four chance of a bigger half-point move in March.

*+22% Meta: No doubt, this was one of the biggest headlines in the earnings season. The parent of Facebook and Instagram stunned Wall Street with lower costs, upbeat sales and a new $40 billion share buyback. CEO Zuckerburg called 2023 the “Year of Efficiency”. The stock had hit a low of $88.09 in early November after its previous bleak results. The biggest intraday surge in more than a decade added over $75 billion to its existing $401 billion market cap. The stock price got close to $200 before paring back to $170 recently.

*136.91 February high USD/JPY: This major has been on a wild ride since spiking to 151.94 in October and 127.21 in January. We’ve gone from unilateral intervention to speculation about a Fed pivot and the new BoJ Governor. The sharp pick up in US Treasury yields in February, from 3.34% to near 4% has boosted USD. Meanwhile, the yen is struggling as new Governor Ueda manages a balanced approach. This means the path to policy normalisation is expected to be slow. It remains too soon to front run any BoJ U-turn.

*100 million users ChatGPT: We often like to include a more off-centre, thought-provoking number in the monthly review. That means we must include the historic release of the AI chatbot. The unprecedented take-up made ChatGPT the fastest-growing consumer internet app ever. By comparison, it took TikTok around nine months after its global launch to hit 100 million users. Instagram took more than two years. It hastened Google’s own version, Bard. But several issues saw the stock lose $100 billion off its market value on release day. The key question is if ChatGPT is a long-term threat to Alphabet.