The Long and Short of it, week ending 16 September 2022

Publication Type: Market Commentaries

All three major stock indexes fell sharply last week with the lion’s share of the move lower occurring Tuesday following a much worse-than-expected CPI release. Increasing Monday on hopes of a favourable CPI release, stock prices nosedived Tuesday after Tuesday’s CPI release showed higher-than-expected inflation levels overall and sharply higher increase in core prices (ie, prices excluding food and energy). The Nasdaq Composite index was the loss leader, falling south of 5% Tuesday, with the S&P 500 Index and Dow Jones Industrial Average losing around 4%. The sharp decline in index levels came as concerns of the magnitude of rate hikes increased with growing expectations the Fed would increase the Fed funds target rate by a minimum of 75bps in this week’s FOMC meeting. Stock markets edged higher Wednesday only to continue to their move lower Thursday and Friday following a weaker-than-expected FedEx earnings report and warnings of layoffs by Goldman Sachs and office closures by FedEx. The 10-year Treasury rate continued its climb higher, increasing 14bps on the week powered by rising 10-year real rates (up 19bps). 10-year inflation expectations fell slightly, decreasing 5bps to 2.37%. For the week, the S&P 500 Index lost 4.8% to close at 3,873.33, the Nasdaq Composite Index fell 5.5% to 11,448.40, the Dow Jones Industrial Average dropped 4.1% to 30,821.50, the 10-year U.S. Treasury rate rose 14bps to 3.45% and the U.S. dollar (as measured by the ICE U.S. Dollar index - DXY) strengthened 0.6%.

European stock indexes finished lower as well last week, affected by growing recession concerns and renewed expectations of aggressive central bank tightening. Initially higher Monday on good news surrounding the war in Ukraine and euro zone gas storage levels, stock prices fell after Tuesday’s worse-than-expected U.S. CPI release. Though headline YoY U.S. inflation was slightly lower than the previous month’s, the level was higher than expected and, more importantly, core inflation (i.e., excluding food and energy) increased much more than expected. The FTSE 100 and STOXX 600 Indexes both fell close to 2.5% over Tuesday and Wednesday following U.S. markets lower amidst central bank-induced recession concerns. The FTSE 100 Index outperformed the STOXX 600 Index benefiting from lower exposure to tech stocks and from a weaker British pound. The British pound closed the week at a 37-year low of $1.14. Both the 10-year UK government rate and the 10-year Bund rate rose again last week but less so than in previous weeks. At week’s end, the FTSE 100 Index decreased 1.6% to 7,236.68, the STOXX 600 Index fell 2.9% to 408.24, the 10-year UK government rate rose 3bps to 3.15%, the 10-year Bund rate rose 7bps to 1.77% and the British pound and euro weakened 1.5% and 0.2%, respectively, both with respect to the U.S. dollar.

Top performing ETPs over the week

. 3x Long ETPs 3x Short ETPs
UK +3x Lloyds Banking Group (3LLL) +11.7% -3x AstraZeneca (3SAZ) +10.9%
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The Long and Short of it, week ending 16 September 2022

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