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The Long and Short of it, week ending 15 July 2022

Posted: 19 July, 2022

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

Publication Type: Market Commentaries

Stock markets moved lower again last week with inflation/recession fears dominating markets. Higher-than expected CPI and PPI releases (Wednesday and Thursday, respectively) rekindled Fed-induced recession concerns with rising expectations of continued aggressive Fed tightening. Weaker-than-expected earnings reports from JP Morgan and Morgan Stanley pushed financial stocks lower, contributing to the overall market’s decline. Stock markets recovered a good portion of their losses through Thursday on Friday, however, with a stronger-than expected retail sales report and better-than-expected earnings reports from Wells Fargo, Citigroup and UnitedHealth Group somewhat ameliorating recession concerns. The 10-year Treasury rate decreased 15bps last week, perhaps reflecting investor sentiment that inflation has peaked and that the Fed will act to reduce rates sooner than expected. 10-year real yields were responsible for the all the decline in the 10-year Treasury rate, falling 16bps to 55bps from 71bps at the end of the previous week. At week’s end, the S&P 500 Index decreased 0.9% to 3,863.16, the Nasdaq Composite Index fell 1.6% to 11,452.42, the Dow Jones Industrial Average inched lower 0.2% to 31,286.20, the 10-year U.S. Treasury rate fell 15 bps to 2.93% and the U.S. dollar (as measured by the ICE U.S. Dollar index - DXY) strengthened 1.0%.

European stock markets moved lower as well last week, reacting to both higher-than-expected inflation reports and disappointing earnings reports in the U.S. as well as to weaker-than-expected Chinese economic growth. Wednesday’s better-than-expected U.K GDP release increased expectations of a 50bp rate increase by the BoE, pressured UK stock prices lower while Tuesday’s sharply lower German consumer sentiment reading depressed euro zone stock prices. Falling commodity prices also pressured the resource-heavy FTSE 100 Index lower over the week. Russia’s suspension of gas deliveries due to summer maintenance on the Nord Stream 1 pipeline added to euro zone stock woes with concerns supplies may be permanently reduced. As in the U.S., both the STOXX 600 and FTSE 100 Indexes moved off their Thursday’s lows after a stronger-than-expected U.S. retail sales report pared concerns of a Fed-induced recession. The 10-year UK government rate and the 10-year Bund rate both fell last week, falling 13bps and 22bps, respectively. Both the British pound and the euro continued to weaken with the euro finishing the week just above parity with the U.S. dollar. At week’s end, the FTSE 100 Index decreased 0.5% to 7,159.01, the STOXX 600 Index fell 0.8% to 413.78, the 10-year UK government rate fell 13bp bps to 2.11%, and the euro and the British pound weakened 0.9% and 1.5%, respectively, both with respect to the U.S. dollar.