Hey Folks, the market price action reflects the higher reading in the VIX with up and down price swings of more than 2% every day. Get me take and where we can go from here.
WEEKLY SOUND BITES:
Markets ended with strong gains (best gains in 4 months), as investors appeared to react to some prominent earnings reports and hints that the Federal Reserve might moderate its pace of interest rate hikes. On Friday, after The Wall Street Journal reported that “some FED officials have begun signaling their desire both to slow down the pace of increases soon and to stop raising rates early next year to see how their moves this year are slowing the economy.” So a 75 bps rate hike for the Nov 2nd meeting is currently baked into the markets but the original forecast of another 75% bps in Dec has been cut to a coin toss of 50 bps vs 75 bps while also lowering rate on early 2023 to 4.75% – 5%
The week’s economic calendar offered mixed evidence on how deeply the Fed’s rate hikes are cutting into growth. An index of homebuilder sentiment also fell more than expected and hit a 10-year low. On the other hand, manufacturing production rose more than expected in September (up 0.4%), and jobless claims for the week ended October 15 fell much more than anticipated to their lowest level since late September.
The hawkish Fed comments earlier in the week pushed the yield on the benchmark 10-year U.S. Treasury note to a 14-year high of 4.33% by the end of the week before finishing at 4.21%. And T-Bills yielding nearly 4% for 90 days is a great place to park cash until markets stabilize a bit more.
Shares in Europe rose on the resignation of UK Prime Minister Liz “Trust Me” Truss and the scrapping of her fiscal policies while European bond yields climbed ahead of a ECB meeting that is expected to result in another 0.75-percentage-point increase in interest rates. In addition, the Bank of England (BoE) confirmed it will begin selling bonds on November 1 that it accumulated under its quantitative easing program. And in the UK, a surge in food prices reignited an acceleration of UK inflation in September. The consumer price index rose 10.1% year over year—matching July’s 40-year high—an acceleration from the 9.9% inflation rate registered in August.
In Japan, Yen weakness was again in the spotlight after moving above the 150 level versus the U.S. dollar, a 32-year low. The BoJ initiated emergency bond-buying operations late in the week, purchasing bonds with maturities between 10 and 25 years on Thursday and Friday. Data late in the week showed that Japan’s core inflation, excluding the impact of tax hikes, hit 3% for the first time in over three decades. To support the Yen the BoJ sells dollars for yen and since most of those dollars are invested mainly in US Treasuries the sale of notes and bonds puts more upward pressure on US Yields.
China’s stock markets recorded a weekly loss after Beijing delayed releasing key economic data without explanation. China’s statistics bureau announced last Monday that it would postpone releasing third-quarter gross domestic product (GDP) and other key indicators, including monthly readings of industrial production, fixed asset investment, and retail sales. The data were originally scheduled for release the next day. The bureau did not say when it would publish the data. The delay raised speculation that the third-quarter GDP report would show that China’s economy was on track to miss the official growth target of around 5.5% this year
Enjoy this Week’s Market Round-Up
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