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WEEKLY ROUND-UP Thru Oct 7th 2022; “Good News is Bad News”

As our trading week started out it looked to set many records with very strong bullish moves. For a two-day period, it clearly did but as the week progressed, price action proceeded to give back almost all the gains at the beginning of the week,


Markets ended higher for the first time in four weeks but surrendered most of their gains, as some data suggested that the economy was not slowing enough to satisfy Feds aggressive interest rate push higher. Stocks bounced off nearly two-year lows on Monday and Tuesday, with the S&P 500 rising 5.6%, its best two-day move since 2020 and the third-best start to an October since 1930. Some downside surprises in economic reports also boosted sentiment by raising hopes that the Fed might slow its rate hikes to tamp down on inflationary pressures. Inflation worries seemed to resurface after OPEC announced a 2 million-barrel per day cut in target production on Wednesday while signs of labor market strength also seemed to deepen inflation fears and Friday’s Jobs Report showed the US added 263,000 jobs in September, with the unemployment rate had fallen back to multiyear lows of 3.5%. This data sent price action down hard as we went into close for the week giving up most of the gains earned earlier in the week.

The Institute for Supply Management’s (ISM) gauge of manufacturing activity fell to 50.9 in September (levels under 50 indicate contraction), below consensus expectations and its lowest level since 2020.

U.S. Treasury yields increased Friday morning after the nonfarm payrolls data, reversing their decline earlier in the week on the decline in job openings and the Australian central bank’s decision to raise rates by 0.25% instead of 0.50%.

IN Europe, the minutes from the ECB’s September monetary policy meeting showed relatively clear-cut support for aggressive action due to rising concerns about high inflation becoming entrenched. A higher-than-forecast jump in eurozone producer prices in August highlighted the upside risk to headline inflation. Factory gate prices rose 5.0% sequentially and 43.3% year over year, mainly driven by surging energy costs while weaker-than-expected industrial output and retail sales for August suggested that the economic slowdown in Germany could be deepening.

Following a rough September for Asian markets, the first full week in October saw a solid bounce, with Japanese equities finishing the week notably higher. The yen rallied midweek, briefly strengthening to high JPY 143 levels against the U.S. dollar. However, this proved to be short-lived, and by the end of the week, the yen was back trading in the high JPY 144 range and testing JPY 145 versus the U.S. dollar. Core consumer prices in Tokyo rose 2.8% in September for the year-over-year period, the biggest gain since 2014. However, data released on Friday also showed that Japanese households cut back on spending for a second month in August, as rising living costs weighed on consumers’ budgets. Japan’s services sector climbed into expansion territory in September, the latest survey revealed, with a PMI score of 52.2. That was up from 49.5 in August.

China’s stock markets were shut for the National Day holiday from October 1 to October 7, otherwise known as Golden Week. Beijing has stepped up measures to support the country’s debt-laden property sector ahead of China’s Communist Party congress, which is slated to start October 16 and last about one week. Chinese President Xi Jinping is widely assumed to secure an unprecedented third term at the twice-a-decade gathering.

Get my take on this week’s price action and where we can go from here.

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