Weekly Macro Minute

GuideStone Reflections

“This is the word of the Lord to Zerubbabel: ‘Not by strength or by might, but by my Spirit,’ says the Lord of Armies. ‘What are you, great mountain? Before Zerubbabel you will become a plain.’

Zechariah 4:6-7, CSB

Zerubbabel had been appointed by the emperor of Persia to serve as governor of Judah, tasked with guiding the Jews in resettling their homeland after their return from exile. Chief among their projects was reconstructing the Temple in Jerusalem, the center of Jewish social, civic and religious life. Rebuilding their society from the ground up turned out to be a far bigger project than any of them had anticipated, and it was stalling out. The initial excitement of returning to the homeland had started to wear off, and the people were tired. The hostile neighboring nations engaged in a non-stop campaign of harassment against them. Resources and financing ran low. They were on a path of obedience, yet they continually seemed to be running up against insurmountable obstacles. God sent the prophet Zechariah with a message of encouragement to Zerubbabel, one of the Old Testament’s best-known phrases: “Not by strength or by might, but by my Spirit.”

There are two lessons that we can learn from Zechariah’s message. First, obedience brings obstacles. Whether stepping out in faith to do something new or just faithfully living the day-to-day, we will always come up against barriers and hurdles. Obstacles in obedience don’t mean that we are doing it wrong. They usually mean we're doing it right, displeasing the Enemy.

Second, our obstacles are God’s obligations. When we obey him, he sends his Spirit to grind away any mountains we may encounter. We can batter away at a barrier with all our strength, but the Holy Spirit works from the inside out by changing hearts and rewiring desires. If people are in the way, he can change their minds. If a lack of resources blocks the path, he will send people to provide precisely what we need.

Our job is to say, “I will follow the Lord.” The Holy Spirit makes the way.

Across the Markets

U.S. equity markets ended mixed on the week as persistent inflation and hawkish comments from Federal Reserve members overshadowed positive economic news and weighed on market sentiment. Robust Producer Price Index (PPI) gains and stickier Consumer Price Index (CPI) measures highlighted that inflation hasn’t been solved yet and caused a repricing of expectations, lifting Treasury yields and strengthening the U.S. dollar.

Six-month U.S. T-Bills now yield over 5% – the first time since 2007 – and the 2-year Treasury ended the week up over ten basis points to 4.63%. As a result, the 2/10 year inversion hit another fresh four-decade spread (currently at 81 basis points). Fed Fund futures shifted the terminal rate expectations to the 5.25% to 5.50% range, pricing in nearly three more 25-basis point hikes. In addition, Fed cuts have started to be priced out, with rates still hovering over 5% at year-end. Higher rate expectations led to a stronger dollar, weaker commodities prices and softness in the energy, real estate and material sectors. WTI oil ended down over 4% to $76.34/bbl.

European stocks rebounded on better-than-expected corporate results despite hawkish rhetoric from central bankers. Some government bond yields reached multi-year highs as a result. Japanese equities were mixed, and the nomination of Kazuo Ueda as the next Bank of Japan governor led to speculation about future monetary policy. Still, we expect no changes in the short term. Lastly, Chinese stocks retreated, but unlike much of the world, China is ramping up its economic support. Vowing a "targeted and forceful" monetary policy to boost domestic demand, China’s central bank added a net 632-billion-yuan infusion into the banking sector (the largest on record).

In the Economy

Sticky inflation, strong retail sales, low initial jobless claims and a modest bounce in housing data all point to a Fed that will likely need to tighten more and stay tighter longer than previously priced in by markets. Headline inflation rose 0.5% in January (6.4% year-over-year), and core inflation (ex. food and energy) was up 0.4% (5.6% year-over-year). The three-month annualized core CPI ticked up to 4.6% after prior revisions, moving away from the Fed’s 2% objective. Furthermore, core goods rose 0.1%, but would have been risen 0.5% if not pulled down by falling used car prices (-1.9%). Finally, the PPI rose a much stronger than expected 0.7% in January, and Core PPI rose 0.5% (and both with positive prior revisions). In addition, this week’s inflation data was enough to create increased speculation that the Fed’s arbitrary 2% objective will ultimately prove not credible. Nonetheless, the Fed will only relinquish that goal after substantial labor market weakness appears.

Led by auto purchases, retail sales were up a robust 3.0% in January – an unexpected advance strong enough to cause a rethink by those looking for an imminent recession. However, as the saying goes, “one month does not make a trend,” and beginning-of-year seasonality can create larger-than-normal distortions in data.