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The Long and Short of it, week ending 12 August 2022

Posted: 16 August, 2022

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

Publication Type: Market Commentaries

Stock markets moved higher last week powered by lower-than-expected CPI and PPI releases. All three major indexes rose 3% or more with the S&P 500 Index slightly outperforming the Nasdaq Composite Index and the Dow Jones Industrial Average. Stock prices were lower through Tuesday tilted by weak earnings reports from Nvidia, Palantir and Micron, the previous Friday’s much stronger-than-expected payroll report and in anticipation of Wednesday’s CPI release. The much lower-than-expected CPI release Wednesday powered stock markets higher with growing expectations of a less aggressive Fed and, consequently, diminishing recession concerns. Stock markets paused on Thursday but resumed their move higher Friday on good earnings reports and improved consumer sentiment. The 10-year Treasury rate edged slightly higher last week, increasing 2bps with 10-year real rates and 10-year inflation expectations both increasing 1bp. For the week, the S&P 500 Index increased 3.3% to 4,280.15, the Nasdaq Composite Index rose 3.1% to 13,047.19, the Dow Jones Industrial Average edged gained 2.9% to close at 33,761.11, the 10-year U.S. Treasury rate rose 2bps to 2.84% and the U.S. dollar (as measured by the ICE U.S. Dollar index - DXY) weakened 0.9%.

European stock markets ended the week higher as well, though underperformed U.S. markets. Overall good earnings reports, strong bank, energy and mining stock performance and Wednesday’s lower-than-expected U.S. CPI release pushed both the STOXX 600 and FTSE 100 Indexes higher for the week. The FTSE 100 Index slightly underperformed the STOXX 600 Index, hurt by a stronger British pound and less exposure to tech stocks. Both the 10-year UK government rate and the 10-year Bund rate increased slightly last week, adding 5bps and 3bps, respectively. At week’s end, the FTSE 100 Index increased 0.8% to 7,500.89, the STOXX 600 Index increased 1.2% to 440.87, the 10-year UK government rate rose 5bps to 2.11%, the British pound and the euro strengthened 0.5% and 0.8%, respectively, both with respect to the U.S. dollar.