Weekly Macro Minute

GuideStone Reflections

The Lord is a jealous and avenging God;

the Lord takes vengeance

and is fierce in wrath.

The Lord takes vengeance against his foes;

he is furious with his enemies.

The Lord is good,

a stronghold in a day of distress;

he cares for those who take refuge in him.

Nahum 1:4, 7, CSB

Critics and skeptics of Christianity refer to the God of the Old Testament as petty and vindictive. They read the stories of his judgment and wonder how such a being could be worthy of worship. The prophet Nahum’s description in 1:2 doesn’t seem to build much of a defense for the Lord. God is jealous, wrathful, and vengeful, he says. We don't want to hang out with such people, so why would we worship a God like that? Then we jump to verse seven and see that the Lord is also good. How can all four of these characteristics be true of God?

We start by understanding that God’s goodness is foundational to his character. He is not always jealous, wrathful, or vengeful, but he’s always good. And as James 1:17 reminds us, he is also the source of all goodness in creation. So, because God is good, he is also jealous, wrathful, and vengeful. These three seemingly negative qualities stem from his goodness. Those words are ugly by our standards, but when applied to an all-good God, they mean something else. God’s jealousy stems from his right to an exclusive relationship with his creation. As creator and sovereign of the universe, he rightly deserves our honor and worship. Because he loves and produces goodness, his wrath is reserved only for evil, injustice and cruelty. And his vengeance is always targeted toward his enemies – the enemies of good.

Those critics and skeptics also fail to understand the God of the Old Testament is the same God of the New Testament – the one who sent his Son to die on the cross. This good God poured out his jealousy, wrath and vengeance on his Son so that his enemies could be transformed into his people through the cross. That's why we can take refuge in him and experience his goodness for ourselves.

Taste and see that the LORD is good. How happy is the person who takes refuge in him! (Psalm 34:8, CSB)

Across the Markets

Global stocks returned to their upward trend last week in hopes of a softer landing at home and better economic prospects abroad. U.S. equities posted substantial gains led by growth-oriented sectors, in particular consumer discretionary and technology shares, while defensive sectors lagged. China celebrated its Lunar New Year as though COVID was a thing of the past, with more than 300 million rail and air trips (90% of pre-COVID levels). While China’s financial markets were closed for the week, the Hong Kong Index resumed trading on Thursday and enjoyed strong gains. European shares gained as eurozone activity stabilized. The Purchasing Managers’ Index (PMI) rose to 50.2 after contracting the prior six months in a hopeful sign that Europe could avoid a recession despite continued hawkishness from its central bank (which, along with the Federal Reserve and Bank of England, has a rate-setting meeting this week).

U.S. Treasury Secretary Janet Yellen flagged early June as the timeframe in which the country risks a technical default if the debt ceiling isn’t raised. While a technical default is highly unlikely, some Treasury Bill maturities for this timeframe are already pricing in a small premium. Absent this anomaly, however, demand for Treasuries in January has been one of the strongest on record per auction dealers, and returns are showing their strongest start to a year since 1988 (up 2.6% for the Bloomberg U.S. Treasury Index). Spread sectors also continue to show substantial gains as investors flocked to all corners of the bond market, including bidding up some of the lowest-rated junk bonds – CCC bonds have even outperformed the S&P 500® with both sectors up over 6% year-to-date.

In the Economy

While the advance estimate of fourth-quarter GDP exceeded expectations at 2.9%, the economic momentum is clearly slowing. Consumer spending on services was strong at 2.6%, but that was the one bright spot. Real consumer spending grew at just 2.1%, and real business investment in equipment declined by -3.7%. This surprise reading was driven by inventories (+1.5%) and foreign trade (exports +0.6%) as imports plunged. For all of 2022, the economy grew just 1.0%, and we expect even slower (or negative) growth for 2023.

Both headline and core (headline ex. food and energy) Personal Consumption Expenditures (PCE) price index showed inflation decelerating year-over-year (headline at +0.1% month-over-month, 5.0% year-over-year; core at 0.3% month-over-month, 4.4% year-over-year). This is the first month in which inflation undershot the Fed’s projections in 2022, and while positive, it doesn't give them much room to turn dovish yet. Powell specifically called out core PCE, excluding housing rents, as a factor to watch. It was up 0.3% in December (same as the prior month) and steady at 4% annualized over the last six months. This measure was running 2% before COVID, so it’s reasonable to expect a hawkish tone from Powell this week, even though the Fed will likely hike by only 25 basis points.

Further bolstering the argument for the Fed to remain hawkish is the continued labor market strength (initial jobless claims fell to 186,000 this week). Still, other evidence emerged that inflation’s underpinnings have weakened. In December, the M2 money supply (cash, checking deposits, and other readily convertible-to-cash deposits) contracted year-over-year for the first time since record-keeping began. While the linkage to inflation from M2 is far from perfect, this may influence monetary policy, as Fed members commented about M2 as a sign of inflationary pressures last year.