Home / Research / The Long and Short of it, week ending 14 October 2022

The Long and Short of it, week ending 14 October 2022

Posted: 18 October, 2022

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

Publication Type: Market Commentaries

A volatile week with all 3 major stock indexes moving lower through Wednesday and then swinging wildly Thursday and Friday both intra- and interday. Prices moved lower early in the week as investors braced for PPIand FOMC minutes Wednesday and CPI Thursday. Russia-Ukraine war flare ups and Biden administration bans on China semi-conductor exports added to market malaise. Wednesday’s worse-than-expected PPI release and FOMC minutes expressing concerns over persistent, high levels of inflation while lamenting a strong job market seemingly had little effect on markets. Thursday’s CPI release showing core CPI increasing at a YoY rate not seen in 40 years, initially pushed stock prices sharply lower with the Dow Jones Industrial Average, for example, falling500 points. Prices, however, then drastically reversed with all 3 major indexes ending the day north of 2% higher, perhaps buoyed by the fact CPI, while higher, had moved lower versus the two prior months or perhaps in expectations of good earnings reports to be released Friday. That sentiment or expectations, if they indeed existed, changed Friday with all 3 major stock market indexes, initially strongly continuing Thursday’s move higher, suddenly U-turned to end the day markedly lower. The move lower came despite better-than-expected earnings reports from JPM Chase, Citi and Wells Fargo. The Nasdaq Composite Index, the worst performer for the week, was also the worst performer Friday, falling 3.1%. The 10-year Treasury rate moved 14bps higher last week with real rates falling 6bps to 1.55% and 10-year inflation expectations increasing 20bps to 2.47%. At week’s end, theS&P 500 Index decreased 1.6% to close at 3,583.07, the Nasdaq Composite Index dropped 3.1% to 10,321.39, the Dow Jones Industrial Average rose 1.2% to 29,634.83, the 10-year U.S. Treasury rate rose 14bps to 4.03% and the U.S. dollar (as measured by the ICE U.S. Dollar index - DXY) strengthened 0.4%.

European stock markets also moved lower through Wednesday, hurt by similar concerns affecting the U.S. market but also by concerns surrounding the U.K. government’s fiscal and tax plans. 10-year gilt rates jumped 23bpshigher Monday over continued concerns surrounding UK pension soundness. They then proceed to fall 28bpsthrough Thursday on hopes the BoE would extend its emergency buyback program beyond Friday. Though the BoE confirmed the program would end Friday, it markedly increased the size (and scope by adding inflation linked bonds to its buybacks) of its buybacks through the end of the week supporting both gilt and stock markets. UK PM Truss’s firing of Finance Minister Kwarteng and modification of her fiscal and tax plans Friday, while overall construed as positive moves, added to uncertainty surrounding her fiscal and tax plans pushing gilt rates 23bpshigher Friday. European stock markets, down sharply early Thursday (partly due to a worse-than-expected U.S.CPI release), behaved similarly to U.S. markets, erasing losses and ending the day higher buoyed by US market performance, good earnings reports and lessened U.K.-related concerns. The STOXX 600 Index out performed the FTSE 100 Index last week mainly due to FTSE 100 Index’s larger exposure to energy and mining stocks and U.K.-related concerns. At week’s end, the FTSE 100 Index fell 1.9% to 6,858.79 the STOXX 600 Index decreased 0.1% to391.30, the 10-year UK government rate rose 18bps to 4.41%, the 10-year Bund rate rose 14bps to 2.34%, the British pound strengthened 0.9% and the euro weakened 0.2%, both versus U.S. dollar.