Home / Research / The Long and Short of it, week ending 26 August 2022

The Long and Short of it, week ending 26 August 2022

Posted: 30 August, 2022

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

Publication Type: Market Commentaries

Amidst uncertainty surrounding Fed Chairman Powell’s Jackson Hole speech Friday, all 3 major stock market indexes moved slightly lower through Thursday, falling between ½ percent and a little over a 1 percent. Powell’s comments Friday affirmed the Fed’s intent to maintain its vigilance against inflation, knocking all 3 major stock market indexes lower by 3% or more. The move lower Friday came despite indications of peaking inflation and a slowing economy with the PCE Price Index (the Fed’s preferred inflation measure) increasing less than expected, durable goods orders less than expected and with the composite PMI declining further below 50. The 10-year Treasury, interestingly, moved only slightly higher, rising 5bps on the week mainly due to higher 10-year real rates. For the week, the S&P 500 Index fell 4% to 4,057.66, the Nasdaq Composite Index dropped 4.4% to 12,141.71, the Dow Jones Industrial Average declined 4.2% to 32,282.80, the 10-year U.S. Treasury rate rose 5bps to 3.03% and the U.S. dollar (as measured by the ICE U.S. Dollar index - DXY) strengthened 0.6%.

European stock markets ended the week lower, pressured by Fed Chairman Powell’s comments Friday at Jackson Hole but also by surging natural gas prices, hawkish ECB comments and weak economic data. Concerns of slowing growth precipitated not only by central bank rate hikes but also by sharply higher energy prices reduced risk-on sentiment and helped move stock prices lower through Thursday with both the STOXX 600 and FTSE 100 Index declining just under 1%. Chairman Powell’s comments Friday unambiguously declaring the Fed’s continued vigilance against inflation pushed both indexes even lower with the STOXX 600 Index falling more sharply than the FTSE 100 Index. Higher oil and metal prices bolstered oil and mining stocks in the FTSE 100 Index while the STOXX 600 Index suffered from its larger exposure to tech stocks. A weaker British pound also benefited the FTSE 100 Index. Both the 10-year UK government rate and the 10-year Bund rate moved higher again with the 10-year UK government rate increasing 19bps and the 10-year Bund rate rising 16bps. At week’s end, the FTSE 100 Index decreased 0.7% to 7,427.31, the STOXX 600 Index fell 1.7% to 426.09, the 10-year UK government rate rose 19bps to 2.60% and the British pound and the euro weakened 0.7%, both with respect to the U.S. dollar