Price action has been rock’n higher and the DOW is turning in a record performance for the month of October. Where does all of this upside price action lead to as we round out the very difficult 2022 year? Get me take in this week’s Round-Up.
WEEKLY SOUND BITES
Another strong week for markets as they ended with strong gains with the DOW having the best month of October since 1976. Energy and other industrial economy stocks handily outperformed growth shares, with the latter weighed down by steep declines in several mega-cap technology and internet-related stocks, MSFT, AMZN, GOOGL and META. The CBOE Volatility Index (VIX), considered Wall Street’s “fear gauge,” fell below its 50-day moving average on Wednesday—only the fourth time that has happened since February. Hopes that the Federal Reserve might slow its pace of rate increases seemed to be a driver of positive sentiment during the week.
The week’s economic data offered conflicting signals on how much room the Fed has to maneuver. SandP Global’s gauge of U.S. manufacturing activity fell into contraction territory for the first time since June 2020, while its service sector gauge also surprised on the downside and indicated an even sharper slowdown in activity. The Conference Board’s index of consumer confidence fell for the first time in three months, reflecting persistent inflation fears, but weekly jobless claims surprised on the downside. The first estimate of US GDP in Q3 showed the economy expanding at an annualized rate of 2.6%, above consensus estimates of around 2.4% and the first positive reading this year. Pending home sales fell 10.2% in September, their sharpest monthly drop since the early days of the pandemic.
A mid-week rally in Treasuries sent the benchmark 10-year U.S. Treasury note yield back below 4.00% before rising a bit on Friday closing over 4%. IN addition, Investment-grade corporate bonds posted gains as risk assets rallied while corporate credit spreads tightened. Feds expected to raise rates by 75 bps this Wed bringing Fed Funds rate up to 3.75% – 4%. With an expectation of now a 50 bps for Dec bringing rates up to 4.25% – 4.5% end of year.
The European Central Bank (ECB) raised its key interest rates for a second consecutive time by 0.75 percentage point and said it may have to raise them further to curb inflation that is still “far too high.” The deposit rate now stands at 1.5%, its highest level since 2009. Business activity in the eurozone contracted for a fourth month running in October, indicating that the economy is likely entering a recession. An early reading of S&P Global’s composite purchasing managers’ index (PMI), a measure of activity in the private sector, dropped to a 23-month low of 47.1 from 48.1 in September. Business activity in the UK shrank for a third consecutive month in October. An early reading of SandP Global’s composite PMI dropped to a 21-month low of 47.2 from 49.1 in September.
IN Japan, the yen started the week on a softer trend, despite signs that the government was ramping up its intervention strategy. The Bank of Japan (BoJ) increased its purchases of Japanese government bonds (JGBs), adding a further JPY 100 billion in 10- to 25-year debt and JPY 50 billion in longer-dated purchases while the manufacturing sector continued to expand in October, the latest PMI data released on Monday showed, registering a score of 50.7.
China’s stock markets pulled back, as investor sentiment was dampened by new COVID-related lockdowns in several parts of China. Growth worries rattled investors despite better-than-expected GDP data reported for the third quarter during. China’s economy expanded 3.9% in July-September from a year earlier, faster than the 0.4% growth in the second quarter. Retail sales grew 2.5%, missing forecasts for a 3.3% increase and easing from August’s 5.4% pace.
Enjoy this week’s round-up
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