Weekly Macro Minute

GuideStone Reflections

If we live by the Spirit, let us also keep in step with the Spirit. Let us not become conceited, provoking one another, envying one another.

Galatians 5:25-26, CSB

How we view ourselves will determine the nature of our relationships. With too low a view, we’ll likely hold people at a distance, believing we’re unworthy of their attention and affection. But in these two verses, the Apostle Paul focuses on the other problematic view: thinking too highly of ourselves.

He tells us two characteristics of conceited people. First, they’re provocative, aggressively challenging other people and their views. Conceit makes them believe that others are not worthy of their attention and affection, so they demand they perform well before they embrace them. The second characteristic is more passive: conceited people live in a constant state of envy because, deep down, they know that there is always someone out there who performs better than them. Thus, rather than appreciate how God made others, they become self-absorbed, burning a lot of energy on envy, leading to further division. In the end, conceited people tend to leave a trail of fractured relationships behind.

The solution to a skewed view of ourselves, Paul says, is to keep in step with the Spirit. The Holy Spirit is God’s gift to Christians, received by his grace through faith (Galatians 3:2-6). For those of us with too high a view of ourselves, the Spirit reminds us that we’re not good enough to earn God’s favor, so we have no reason for conceit. And for those with too low a view, He reminds us that we don’t need to earn it anyway. We can give ourselves the same mercy He gave us. Living by the Spirit gives us the correct view of ourselves and infuses our relationships with grace.

Across the Markets

Global stocks ended the week higher as the overhang from the banking crisis and recession worries combined with a Fed meeting to create another volatile week. The S&P 500® remains in positive territory for the year with just under a 4% gain. Financials underperformed for a third week, and the real estate sector continued a trend of weakness, as regional banks are that sector’s primary lender. WTI oil trended downward for the week, closing at just over $69/bbl. On the fixed income front, despite gyrations, the yield curve remained remarkably unchanged week-over-week, with the benchmark U.S. 10-Year at 3.37% and the 2s/10s inversion at a more muted 41 basis points.

The story in Europe roughly mirrored U.S. price action, with markets generally positive and pronounced weakness in the banking sector. Deutsche Bank was the latest European bank subjected to closer scrutiny as we headed into the weekend. The Bank of England hiked rates for the 11^th consecutive time while the eurozone Purchasing Managers Index logged a slightly higher reading, thus taunting European Central Bank policymakers. In Asia, Japanese stocks were generally flat as inflation slowed in the country, while Chinese stocks rose in the wake of the People’s Bank of China leaving its benchmark rates steady.

In the Economy

The undisputed main events of the week were the Fed rate decision, the release of the “dot plot,” and the following press conference. As widely expected, the Fed delivered a 25-basis point rate hike to a range of 4.75% - 5.00%. The dot plot showed a widening divergence in Fed officials' opinions but with a consensus expecting to stop raising rates after the May meeting. In his press conference, Chairman Powell expressed that financial tightening stemming from the banking crisis could complement the Fed’s efforts, therefore reducing the need for many more rate hikes. Notably, he stressed that they do not see rate cuts in 2023. Despite this clarity, the market is presently pricing in a mere 0.2% chance that rates will remain at the current level by December of this year. In fact, the market projects a total of 100-basis points of cuts over the next eight months, squarely in contrast to the Fed’s messaging. This disparity is most notably observed in the U.S. 2-Year Treasury yield falling below the current Fed Funds rate. Historically, such a disparity has signaled a coming recession.

In other economic news, weekly jobless claims remained near five-decade lows. The S&P Global’s Composite Index of current services and manufacturing activity rose well into expansion territory at 53.3, thus indicating the fastest pace of private sector growth since last May.