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The Long and Short of it, week ending 11 November 2022

Posted: 14 November, 2022

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

Publication Type: Market Commentaries

Major stock market indexes moved sharply higher last week, surging Thursday following the release of much better-than-expected CPI data. Up between 1.5% and 2% through Tuesday on projections mid-term elections would provide a split Congress, stock indexes fell 2% or more Wednesday on uncertainty surrounding mid-term election results and cryptocurrency-related turmoil. The liquidity crises enveloping FTX worsened severely after Binance walked away from acquiring FTX (leading to its filing for bankruptcy) and pushed bitcoin below $16,000. Indexes surged Thursday, however, reacting to a lower-than-expected core and overall CPI release. Expectations of a less aggressive Fed and a 50bp rate hike in December (down from expectations of 75bps) propelled the Nasdaq Composite Index over 7% higher Thursday (the S&P 500 Index and Dow Jones Industrial Average gained 5.5% and 3.7%, respectively) and bitcoin reversed all its Wednesday losses. Indexes continued to move higher Friday on Thursday’s momentum. The 10-year Treasury rate, only slightly lower through Wednesday, fell 29bps Thursday (bond markets were closed Friday due to Veterans Day) following better-than-expected CPI data and the U.S. dollar fared similarly, sharply weakening Thursday and Friday. At week’s end, the S&P 500 Index rose 5.9% to 3,992.93, the Nasdaq Composite Index jumped 8.1% to 11,323.22, the Dow Jones Industrial Average increased 4.1% to 33,419.18, the 10-year U.S. Treasury rate dropped 35bps to 3.81% and the U.S. dollar (as measured by the ICE U.S. Dollar index – DXY) weakened 4.1%.

European stock markets diverged with the FTSE 100 Index falling slightly over the week and the STOXX 600 Index moving almost 4% higher. The STOXX 600 Index, up about ¾ percent through Wednesday, mostly mirrored movements in U.S. stock indexes moving higher Monday and Tuesday and falling Wednesday on U.S. CPI jitters and FTX-related bitcoin woes. The FTSE 100 Index, beleaguered by a sharply strengthening British pound (due to its larger exposure to US dollar revenues) and falling oil prices, finished the period through Wednesday down about ½ percent. Thursday’s better-than-expected U.S. CPI release pushed both indexes higher but with the STOXX 600 Index (more heavily tech stock weighted) increasing almost 3 times more than the FTSE 100 Index. Reports Friday of China relaxing Covid-related restrictions supported both the FTSE 100 and STOXX 600 Index but a smaller-thanexpected contraction in UK GDP added to the British pound’s strength pushing the index lower. At week’s end the FTSE 100 Index decreased 0.2% to 7,318.04, the STOXX 600 index increased 3.7% to 432.26, the 10-year UK government rate fell 18 bps to 3.38%, the 10-year Bund rate fell 13bps to 2.16% and the British pound and euro both strengthened 4% and versus U.S. dollar.