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The Long and Short of it, week ending 18 November 2022

Posted: 21 November, 2022

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

Publication Type: Market Commentaries

A relatively subdued week with all 3 major stock indexes mildlyy vacillating during the week but ending slightly lower. A lower-than-expected PPI release Tuesday added to last week’s increased “peak-inflation” and “Fedpause” sentiment, buoying stock prices and mainly erasing Monday’s drawdown. Stronger-than-expected retail sales (released Wednesday) and falling initial jobless claims injected renewed doubt regarding a less aggressive Fed, pushing stock prices lower. On the flip side, Target’s weak earnings report and outlook also pressured prices lower. Hawkish comments Thursday from Fed officials – namely St. Louis Fed President Bullard – also pressured prices lower. The S&P 500 and Nasdaq Composite Indexes managed to move higher Friday, perhaps as a result of falling U.S home sales, but nonetheless finished the week in the red. The 10-year U.S. Treasury rate increased 2bps with a 16bp increase in 10-year real rates offset by a 14bp decline in 10-year inflation expectations. 10-year inflation expectation are now at a recent low of 2.25%. At week’s end, the S&P 500 Index decreased 0.7% to 3,965.34, the Nasdaq Composite Index fell 1.6% to 11,146.06, the Dow Jones Industrial Average was basically unchanged at 33,747.14, the 10-year U.S. Treasury rate increased 2bps to 3.83% and the U.S. dollar (as measured by the ICE U.S. Dollar index – DXY) appreciated 0.6%.

European stock indexes outperformed U.S. indexes last week. Rising early in the week on a lower-than-expected U.S. PPI release, both the STOXX 600 and FTSE 100 Indexes fell mid-week reacting to a higher-than-expected (41- year YoY high) UK CPI release, nervous anticipation of Chancellor Hunt’s UK budget report on Thursday and weak mining and energy stock prices. Concerns of weak Chinese demand, driven by increased Covid cases, pressured base metal and energy prices lower pulling mining and energy stock prices lower. Markets rallied Friday, primarily on dovish comments from ECB officials suggesting the pace of rate increases will lessen going forward but also on a no-surprise UK budget announcement. Expectations of slower growth or even recession in the euro zone and the UK pushed longer term interest rates lower with both the 10-year gilt rate and the 10-year Bund rate dropping 14bps over the week. At week’s end the FTSE 100 Index rose 0.9% to 7,385.52, the STOXX 600 index increased 0.2% to 433.32, the 10-year UK government rate fell 14 bps to 3.24%, the 10-year Bund rate also fell 14bps to 2.02%, the British pound strengthened 0.5% and the euro weakened 0.3% both versus U.S. dollar.