The Long and Short of it, week ending 28 October 2022

Publication Type: Market Commentaries

Stock indexes moved sharply higher last week, led by the Dow Jones Industrial Average. Growing expectations ofthe Fed slowing its pace of rate hikes and better-than-expected earnings reports from banks and airlines pushed all3 major indexes up by at least 2.5% through Tuesday. The 10-year Treasury rate, reacting to sharply lower home price growth, falling PMI index levels and hopes of a less aggressive Fed, fell 15bps Tuesday, helping the Nasdaq Composite index move 2.25% higher. Disappointing earnings reports from Google and Microsoft weakened investor sentiment driving index levels lower Wednesday. Meta’s much worse-than-expected earnings report, released after the close Wednesday, contributed to falling index levels with Meta’s share price plummeting 25%Thursday. Thursday’s seemingly better-than-expected Q3 GDP release actually revealed slowing consumer spending and a decline in residential housing investment, both signs of a slowing economy. The increase in GDP was solely attributed to a decrease in the trade deficit with analysts warning that was likely to reverse due to the U.S. dollar’s strength. As a result, 10-year Treasury yields dropped another 7bps. Indexes moved markedly higher Friday following better-than-expected earnings reports from Apple and Intel and despite disappointing results from Amazon. Friday’s YoY PCE core price index increased less than expected but higher than the previous month’s, slightly increasing expectations the Fed would maintain its pace of rate increases and driving the 10-yearTreasury yield 9bps higher. At week’s end, the S&P 500 Index rose 3.9% to 3,900.05, the Nasdaq Composite Index increased 2.2% to 11,102.45, the Dow Jones Industrial Average gained 5.7% to close at 32,861.34, the 10-year U.S.T reasury rate fell 21bps to 4.01% and the U.S. dollar (as measured by the ICE U.S. Dollar index - DXY) weakened1.2%

An up week for European stock indexes as well though not quite as pronounced as in the U.S. Hopes of a less aggressive Fed and the appointment of Rishi Sunak as the UK’s new prime minister helped move stock prices higher throughout the week. The Bank of Canada’s smaller-than-expected rate increase combined with ECB President Lagarde voicing concerns regarding weak economic growth added to sentiment of a central bank “dovishpivot” also buoying stock prices. The UK gilt market rallied and the British pound strengthened considerably last week (thanks to the new U.K. prime minister), with 10-year gilt rates falling over 50bps and the British pound gaining almost 3% versus the U.S. dollar. The stronger British pound and falling commodity prices (mainly due toc oncerns over China’s expanding Covid restricts), however, limited the FTSE 100 Index’s gains with the STOXX 600index strongly outperforming. Disappointing earnings reports from tech giants Microsoft, Amazon, Facebook and Alphabet - initially construed as negative - may have contributed to increased sentiment of slowing central bank rate increases going forward. At week’s end, the FTSE 100 Index rose 1.1% to 7,047.67, the STOXX 600 Index rose3.7% to 410.76, the 10-year UK government rate fell 54bps to 3.49%, the 10-year Bund rate dropped 34bps to2.09% and the British pound and the euro strengthened 2.8% and 1.0%, respectively both versus U.S. dollar.

Top performing ETPs over the week

. 3x Long ETPs 3x Short ETPs
UK +3x Rolls-Royce (3LRR) +14.0 % -3x Rio Tinto (3SRI) +20.3%
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The Long and Short of it, week ending 28 October 2022

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