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The Long and Short of it, week ending 09 September 2022

Posted: 13 September, 2022

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

Publication Type: Market Commentaries

After 3 weeks of declines, stock indexes moved higher last week. The move higher occurred despite continued strong, inflation-fighting language from Fed Chairman Powell Thursday and a 75bp hike by the ECB Wednesday. Stronger-than-expected earnings reports combined with another week of decreasing jobless claims and a betterthan-expected ISM Services PMI seemed to bolster investor sentiment in the face of recession/slowing growth concerns. The 10-year Treasury continued its move higher, increasing 12bps with 10-year real rates rising 14bps and 10-year inflation expectations falling 2bps. For the week, the S&P 500 Index gained 3.7% to close at 4,067.36, the Nasdaq Composite Index climbed 4.1% to 12,112.31, the Dow Jones Industrial Average rose 2.7% to 32,151.71, the 10-year U.S. Treasury rate rose 12bps to 3.31% and the U.S. dollar (as measured by the ICE U.S. Dollar index - DXY) weakened 0.6%.

Both the STOXX 600 and FTSE 100 Indexes moved higher last week, following U.S. stock indexes while reacting positively to the ECB’s rate hike Thursday and the election of Liz Truss as the UK’s new prime minister. Both the UK and euro zone stock markets overcame growing recession concerns in the face of continued elevated inflation and aggressive central bank tightening, rallying on a combination of strong banking and retail stock performance and volatile but rising energy and mining stock prices. Concerns over PM Truss’ energy-assistance package - providing nearly $175 billion of high-energy-cost assistance to individuals and businesses - fuelling even greater inflation, seemed to fade as the week ended with both the FTSE 100 Index rising nearly 1 ¼ percent Friday. The ECBs 75bp rate hike and warnings of more hikes to come also did not deter markets from rising. The BoE, scheduled to meet next week, postponed its meeting till September 22 due to the passing of the queen. Both the 10-year UK government rate and the 10-year Bund rate once again moved higher with the 10-year UK government rate increasing 20bps and the 10-year Bund rate rising 18bps. At week’s end, the FTSE 100 Index increased 1.0% to 7,351.07, the STOXX 600 Index rose 1.1% to 420.36, the 10-year UK government rate rose 20bps to 3.12%, the 10- year Bund rate rose 18bps to 1.7% and the British pound and euro strengthened 0.7% and 0.9%, respectively, both with respect to the U.S. dollar.