Weekly market recap 19 September 2022 - FTMO®

Slide WEEKLY MARKET RECAP Your weekly global financial markets newsletter Market weekly Recap

19 September 2022

  • Although it looked promising a month ago, investors will not see the Fed easing its aggressive monetary policy so soon. In fact, instead of a slowdown in inflation, we saw unexpected price increases in August, and year-on-year inflation was also above expectations. Year-on-year, core inflation even rose from 5.9% to 6.3% compared to the previous month. With energy and fuel prices seeing significant declines, the inflation data shows that higher price pressures are filtering through to other areas of the economy, such as housing or health services sectors.
  • As this is the last major data point before Wednesday’s FOMC meeting, speculation is beginning to circulate that central bankers may raise rates by as much as 1%. Thus, rapidly rising debt costs will likely eliminate the chance of a soft landing for the economy, and a recession may be around the corner.

Indices

US equities experienced another sell-off last week, with the S&P 500 and Nasdaq indices posting their most significant weekly declines since June and the DJIA since August. Tuesday’s inflation data was to blame, after which the DJIA fell by 1,300 points in one day, and overall stocks notched their worst daily performance since 2020, when the pandemics affected the markets.

Stocks in Europe also fell, but the declines were milder. The main factor was the meeting of EU ministers on energy prices and the introduction of price caps. As a result, the pan-European STOXX Europe 600 ended 2.89% lower, Germany’s DAX 40 slid 2.65%, France’s CAC 40 lost 2.17%, and the UK’s FTSE 100 declined by 1.56%.

US30
-4.13%
US100
-5.01%
US500
-4.77%
GER40
-2.65%

Commodities

With Russian President Putin’s game of oil supply curtailment no longer as relevant as it was a few months ago, the oil price has seen its third weekly decline in a row. US WTI is well below USD 90 per barrel, and Brent is just above USD 90.

Other commodity markets have not fared well over the past week either, and, as with equities, the main culprit is the US inflation, which has helped the US dollar rise significantly and left deep scars on other markets.

Gold
-2.39%
Silver
+4.11%
BRENT
-1.18%
NATGAS
-2.30%

Forex

The falling oil price is also negatively affecting the Canadian dollar, which has reached its lowest level against the US dollar since November 2020.

Similarly, the New Zealand dollar also hit its lowest level since May 2020 during the week, although the macro data, including GDP and PMI, came in mostly above expectations last week.

The British pound fell to its lowest level against the US dollar since 1985 in the past week. In addition to recession fears, the fact that the BoE is raising rates, albeit more slowly than the US Fed, is helping this trend.

EUR/USD
0.32%
USD/JPY
+0.25%
GBP/USD
-1.48%
USD/CAD
+1.80%

Macro

In addition to inflation, the retail sales data was also published in the US, which surprisingly rose by 0.3% month-on-month. The fall in fuel prices allowed people to spend on other things.

The fall in gasoline prices also positively impacted Michigan’s preliminary reading on consumer sentiment for September, which rose to a five-month high.

Labour market data was also positive, with weekly jobless claims falling to 213,000, the lowest since the early summer.

UK inflation fell from 10.1% to 9.9%, mainly due to a fall in fuel prices. However, core inflation rose from 6.2% to 6.3%.

The UK unemployment rate fell to 3.6% in the quarter to July, the lowest level since 1974. However, the number of people in employment also fell, so that the labour market may be losing momentum.

In the Eurozone, inflation rose to 9.1% in August, but the figure was in line with preliminary data. Industrial production in the euro area declined by 2.3% year-on-year in July due to the rising energy costs and supply chain bottlenecks.

The economic mood in Germany deteriorated again due to concerns about energy shortages and declines in incoming orders, industrial production and exports. As a result, the ZEW economic sentiment index fell to -61.9 points, the lowest level since October 2008.

What to watch out for this week

  • Central banks will play a significant role in the macro calendar in the new week. Initially everyone will anxiously await how the Fed will react to the surprisingly strong inflation on Wednesday. A 1% rate hike, which would have been unthinkable just a few months ago, is already in play.
  • After a week’s delay, the Bank of England will also decide on rates. A 0.5% rate hike is expected to continue here as well, but analysts do not rule out the possibility of a 0.75% hike.
  • On Thursday, rates will also be decided in Switzerland or Norway, and the Bank of Japan, which is no longer comfortable with the extremely weak yen at a 24-year low, may also surprise.
  • Data on purchasing managers’ indices in manufacturing and services will be expected. In the euro area, in particular, the numbers have been below 50 for two months, which means that we may see a recession in Europe sooner than expected, due to the uncertainty in the energy market.
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