Hey Folks, and you thought this past trading week was bumpy, well let’s see how markets react to the Fed’s FOMC rate decision and press conference on Wed. Sept 21st. Could be very interesting and hopefully will answer or at least attempt answer many lingering questions regarding future rate hikes into the end of 2022 and Q1 of 2023. Get my take on the markets in this week’s round-up.
WEEKLY SOUND BITES:
Major indexes moved sharply lower as inflation fears intensified and short-term bond yields reached levels last seen in 2007. The S&P recorded its largest weekly drop since mid-June and hit its lowest point on an intraday basis since mid-July. Selling was relatively orderly, however, with the VIX remaining well below the levels seen at the start of the pandemic. Trading volumes were also contained, with the number of shares traded coming in below average.
The defining event of the week appeared to be Tuesday’s CPI, which came in above expectations and dimmed hopes for some investors that the economy had moved beyond “peak inflation.” Headline prices rose 8.3% for the 12 months ended in August versus consensus expectations for an increase of around 8.1%. More concerning may have been that core inflation (excluding food and energy) jumped to 6.3%—its highest level since March and above expectations for a rise of 6.1%. Core producer prices, reported Wednesday, offered a somewhat more hopeful story, continuing a year-on-year decline that began in April, falling to 7.3% in August from 7.6% in July. Falling gas prices also helped the University of Michigan’s preliminary reading on consumer sentiment for September hit a five-month high, while five-year inflation expectations in the survey fell to 2.8%, the lowest in over a year.
U.S. Treasury yields continued to push higher, particularly on short- and intermediate-term maturities, as disappointing inflation data and a further decline in jobless claims cemented investors’ expectations for a minimum 75 bps interest rate hike at the next Feds meeting on Sep 21st…in fact, by midweek probabilities for a full 1% rate increase were over 30%, though this probability declined somewhat by Friday’s close. Amid expectations for a continuation of rapid monetary tightening, the two-year U.S. Treasury note yield traded around 3.90% early Friday morning—its highest level in nearly 15 years.
We did get a small reduction in U.K. inflation coming in at 9.9% in August. This reading marked a decline from the 10.1% registered in July. And the British pound depreciated against the U.S. dollar, sinking to levels last hit in 1985. Fears of a looming recession contributed to this downward pressure, along with concerns that the Bank of England might deliver an interest rate hike of 0.5 percentage point at its next meeting. The U.K. jobless rate fell to 3.6% in the quarter through July, the lowest level since 1974. The European Commission published proposals that could raise up to EUR 140 billion to soften the impact of soaring energy costs. The measures include a windfall tax on fossil fuel company earnings, a cap on the revenue of non-gas power producers, and a reduction in electricity demand at peak times each month.
Over in Japan trade data for August showed exports grew 22.1% from August 2021, building on a 19% annual increase in July. Japan’s top export market was the U.S. The Japanese currency finished around JPY 143 against the U.S. dollar from about JPY 142 the prior week. Rumors circulated midweek that the Bank of Japan (BoJ) would intervene in currency markets to stem the yen’s slide against the U.S. dollar.
China reported better-than-expected growth in factory output and retail sales last month. Industrial production rose 4.2% year on year in August, up from 3.8% in July, while retail sales jumped 5.4% year on year from July’s 2.7% growth. However, the property sector extended its slump. New home prices in 70 cities, excluding state-subsidized housing, fell in August for the 12th straight month.
Enjoy this week’s Round Up;
Don’t Be A Rat Brain Trader – Be the Red Stripe Zebra !!