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The Long and Short of it, week ending 02 September 2022

Posted: 06 September, 2022

Topic: Telecoms , Financials , Basic Materials , Energy , Healthcare , Technology

Publication Type: Market Commentaries

Stock markets declined again last week, continuing their trend lower following Fed Chairman Jerome Powell’s Jackson Hole comments the previous Friday. Indications of a resilient economy, including a better-than-expected ISM Manufacturing PMI and lower-than-expected jobless claims, added to sentiment the Fed would likely continue its aggressive tightening policies. Friday’s Employment Report showing as-expected job gains but lower-thanexpected wage increases and a higher-than-expected unemployment rate, initially moved stock prices higher on hopes the report would give the Fed room to be less aggressive. Those hopes faded throughout the day, however, with all 3 major stock market indexes moving lower on the day. The 10-year Treasury rate, reflecting higher-rate expectations, rose 16bps over the week with 10-year real rates rising 26bps and 10-year inflation expectations falling 10bps. The U.S. dollar, also reflecting higher-rate expectations, strengthened ¾ percent. For the week, the S&P 500 Index fell 3.3% to 3,924.26, the Nasdaq Composite Index dropped 4.2% to 11,630.86, the Dow Jones Industrial Average declined 3.0% to 31,318.84, the 10-year U.S. Treasury rate rose 16bps to 3.19% and the U.S. dollar (as measured by the ICE U.S. Dollar index - DXY) strengthened 0.7%.

European stock markets also moved lower last week, suffering continued fallout from Fed Chairman Powell’s Jackson Hole comments and from growing expectations the BoE and the ECB will aggressively raise rates as well. Forecasts of 20% UK inflation precipitated by soaring energy costs and 2-year low British business optimism pressured the FTSE 100 Index lower on the week despite a significantly weaker British pound. Falling oil and base metal prices hurt both the FTSE 100 and STOXX 600 Indexes, punishing mining and energy stocks. News of Russia’s stopping all natural gas flows through Nord Stream added to inflation and recession concerns also pressuring stock prices lower. Both the FTSE 100 and STOXX 600 Indexes moved almost 2% higher Friday reacting to an asexpected U.S. payroll report tinged with slight weakness (U.S. stock indexes initially moved higher as well but closed Friday in the red). Both the 10-year UK government rate and the 10-year Bund rate moved higher again with the 10-year UK government rate increasing 32bps and the 10-year Bund rate rising 12bps. At week’s end, the FTSE 100 Index decreased 2.0% to 7,281.19, the STOXX 600 Index fell 2.4% to 415.97, the 10-year UK government rate rose 32bps to 2.92%, the British pound weakened 2.0% and the euro was unchanged, both with respect to the U.S. dollar.