Indices

Stock markets have reached new lows this year after the third week of declines. Weekly declines in the USA of about three per cent mean monthly losses of over nine per cent and more than 20 per cent losses since the start of the year, meaning US stocks are back in bearish territory, and there is nothing to prevent further declines. So investors can only hope that September, the worst month in a long time, is behind them and that some miracle will eventually lead to a resumption of growth in the stock markets.

The markets are still reacting negatively to relatively positive macro data, rising inflation and the central banks’ belief that they can only fight inflation by raising rates significantly. While Wednesday’s commitment by the BoE to buy long-term bonds was a positive boost for equity markets on both sides of the Atlantic, this optimism did not last long, and, ultimately, fears of a recession continue to weigh on markets. The pan-European STOXX Europe 600 Index ended the week 0.65% lower (-6.57% in September), France’s CAC 40 slipped 0.36% (-5.92%), Germany’s DAX slid 1.38% (-5.61%), and the UK’s FTSE 100 Index lost 1.78% (-5.36%).

Forex

Late this week, it was revealed that Japan spent a record 2.8 trillion yen ($19.7 billion) on its recent intervention in FX markets. While data from the Ministry of Finance shows the total intervention spending from the entire month of September, it is believed that the whole amount was just used on September 22. The amount of funds used shows a solid determination to defend the yen from further declines. However, high volatility in the currency market means growing uncertainty. If Japan continues to intervene on its own, the interventions may be less effective without the cooperation of other countries and institutions. It is also true that the yen has already lost most of what it gained by intervening against the dollar and is once again approaching the 145 yen per dollar level.

Macro

Good news is still bad news. The weekly jobless claimant count indicated that the US labour market is still strong (down to 193,000, expected to rise to 215,000), leading investors to believe even more strongly that the Fed will go ahead with its planned rate hikes.

Unfortunately, even the Fed’s aggressive approach is not helping to fight inflation, as evidenced by the PCE Price Index data as the Fed’s preferred inflation gauge. The Core (less food and energy) PCE Price Index rose 4.9% YoY in August, well above expectations of 4.7%.

The surprise was a 28.8% rise in new home sales in August, which is very unexpected given the rapid increase in mortgage rates. Pending home sales, however, fell slightly in August.

The US GDP fell an annualized 0.6% in Q2 2022, following a 1.6% contraction in Q1. The figure is better than the first estimate of a 0.9% decline and in line with the second estimate. The US seems to be inevitably headed to a technical recession.

Preliminary data shows that the annual inflation rate in the Euro Area rose to 10% in September, a new all-time high. Compared to the previous month, prices rose by 1.2%. The core inflation rate also rose to an all-time high of 4.8%. The unemployment rate remained unchanged at a record low of 6.6% in September, entirely in line with the expectations.

According to the ECB chief, the economic outlook is “darkening”, and economic activity is likely to see a significant slowdown in the coming months. She said that the ECB will continue to tighten monetary policy and try to get inflation to the 2% target.