Company / Analytics

Week 36 in brief

North America

US stocks rose on Friday, with all major indices ending the week in gains, their first recorded weekly gains in four. Investors went on a buying spree in the week despite concerns about the economic outlook. These gains followed three weeks of losses that began in mid-August that had been triggered by concerns about the impact of tighter monetary policies and signs of an economic slowdown in Europe and China.

Analysts believe these gains were a result of the excessive selloff over the previous three weeks. Investors and analysts still remain uncertain about how the market will move going forward with inflation and the Federal Reserve’s aggressiveness in interest rate hikes still a big concern.

How did the major indices perform

On Friday:

• The Dow Jones Industrial Average rose 377.19 points, or 1.19%, to 32,151.71
• The S&P 500 gained 61.18 points, or 1.53%, to 4,067.36
• The Nasdaq Composite added 250.18 points, or 2.11%, to 12,112.31.

For the week:

• The Dow advanced 2.7%
• The S&P 500 climbed 3.6%
• The Nasdaq gained 4.1%.

What drove the US market

• The August consumer prices (CPI) report on Tuesday might have had an influence on the market as investors expect to see signs that inflation may be easing. It is expected to show that prices rose at an 8.1% pace over the year in August, compared with 8.5% in July.
• The sectors that lead the market moving into the green are communication services, technology, energy, and consumer discretionary.
• Fed’s Governor Christopher Waller indicated the fed would advance hikes in interest rates, mentioning that the Fed should be aggressive with rate hikes while the economy “can take a punch”.
• U.S. equity funds recorded outflows of $11.5 billion in the week to Wednesday, their largest outflow in 11 weeks, Bank of America Merrill said on Friday.
• Volume on U.S. exchanges was 9.91 billion shares, compared with the 10.24 billion average for the full session over the last 20 trading days.
• The S&P 500 posted seven new 52-week highs and no new lows; the Nasdaq Composite recorded 47 new highs and 63 new lows.

How did the European markets perform?

• The biggest highlight for Europe and its market was the death of the Queen of England, with The Bank of England on Friday saying it would postpone its September Monetary Policy Committee meeting by a week as the country enters a period of national mourning.
• World leaders offered tributes to Queen Elizabeth II after Britain’s longest-serving monarch died Thursday at age 96.
• On Friday, European markets ended higher with the pan-European Stoxx 600 provisionally ending up 1.6%, with all sectors and major bourses in positive territory. Mining stocks ended Friday 3.2% higher to lead gains, while tech stocks were up 2.7%.
• The European Central Banks posted a record rate hike with the announcement of a 75 basis point interest rate rise, taking its benchmark deposit rate to 0.75%. The bank also revised up its inflation expectations — to an average of 8.1% in 2022 — and said it expects to hike rates further as inflation remains far too high and is likely to stay above target for an extended period.

How did Asian markets perform?

• Asian stocks tracked wall street on Friday to end in gains as the dollar and Treasury yields came down from their recent highs. These gains were however capped as hawkish signals from the Federal Reserve pointed to an 85% chance that the central bank will raise interest rates by 75 basis points in September.
• Despite the week’s gains, most Asian markets are nursing steep losses this year, as rising interest rates in the United States pressured most global stock markets.
• On Friday, China’s Shanghai Shenzhen CSI 300 bluechip index rose 1.1%, while the Shanghai Composite index added 0.7% after substantially weaker-than-expected inflation readings for August drove up expectations of more stimulus measures by the Chinese government.
• Beijing has already promised to increase spending in the third quarter, as Chinese economic growth slowed to a crawl this year due to continued COVID-related lockdowns.
• Hong Kong’s technology-heavy Hang Seng index was the best performer for the day, jumping 2.5% as easing yields benefited major tech stocks. But losses in Tencent earlier this week, amid speculation over a share sale by a major stakeholder, put the Hang Seng on course for a 0.6% weekly loss.
• In the Asia-Pacific region, Australia’s S&P/ASX 200 rose 0.5% and was also on course to break a two-week losing streak. Data earlier this week showed Australia’s economy continued to expand in the second quarter, albeit at a slightly lesser-than-expected pace. But Australian trading activity slumped in July, amid a slowdown in major partner China.

Bonds and Commodities

• Whilst there was upward movement in the yields on U.S. Treasury bonds during the week, there were little changes on Friday following the European Central Bank’s interest rate hike deployed to tackle soaring inflation in the bloc.
• The yield on the benchmark 10-year Treasury note was two basis points higher at 3.317% at 4:00 p.m. ET, while the yield on the 30-year Treasury bond was one basis point higher at 3.456%.
• The yield on the 2-year note was trading at 3.561%. The short-term note rose to 3.55% last week, reaching its highest level since 2007.
• Yields had ticked upward after the European Central Bank on Thursday hiked interest rates by 75 basis points, raising its deposit rate to 0.75% from zero, in a largely expected hawkish move to counter fast-rising inflation.
• Commodities have garnered record investments in recent times among investment banks, with expectations that Investment banks are set to make a record-breaking $20 billion trading and financing commodities like oil, gas, and metals in 2022, more than triple what they earned in the years before COVID-19.

Currencies

• The greenback currency did not have a particularly good week, as the dollar index and dollar index futures both lost 0.6%, with a jump in the euro also pressuring the greenback. The euro rallied after the European Central Bank hiked interest rates by a record 75 basis points on Thursday.
• Most Asian currencies crept higher on Friday and were set to end the week largely unchanged as the dollar retreated from a 20-year peak.
• The Japanese yen rose 0.3%, while China’s yuan added 0.2%. Both currencies hovered over multi-year lows and were the worst-performing Asian units this week.
• China’s yuan was hit particularly hard by a slew of weak economic readings in the past two weeks. Data on Friday showed Chinese inflation shrank in August, as COVID-19 lockdowns and an energy shortage severely dented economic activity.
• Other Asian currencies, such as the Singapore dollar and South Korean won, rose 0.4% and 0.6%, respectively, on Friday. Most regional units took support from mild weakness in the dollar, which came off 20-year highs.

Next week

Next week, we can expect an eventful week of economic reports in the U.S. and abroad. On Tuesday, the Labor Department’s Consumer Price Index (CPI) will offer the latest update on consumer inflation. The Producer Price Index (PPI) will follow on Wednesday. On Thursday, August retail sales figures will be released, along with updates on the strength of the industrial and manufacturing sectors. The preliminary September reading of the Michigan Consumer Sentiment Index (MCSI), due on Friday, will provide a key update on consumer confidence. Inflation and GDP growth figures from the U.K. will also be released.