Last week, the financial markets displayed a welcome resilience despite inflation data adding to traders’ concerns about future interest rate hikes.
Forex
Source: Bloomberg. Click to see full size.
Last week, EUR/USD stayed flat and traded around $0.9721. Despite easing for a third straight month, the US Consumer Price Index (CPI) for September fell short of market expectations of 8.1% as the figure hit the 8.2% mark on a year-on-year (YoY) basis. However, core inflation increased to a record high of 6.6% YoY.
Furthermore, in the European Union, Germany confirmed that annual inflation rose by 10.9% in September 2022. Two rate hikes have been delivered by the European Central Bank (ECB), totalling 125bps – this is well below the Federal Reserve’s 300bps (Fed). However, more rate hikes may occur at the Fed and ECB’s next 2 monetary policy meetings, which are due before the end of the year.
GBP/USD, on the other hand, recovered from the previous week’s decline and was trading around $1.1183 for the week. The reason for it going up was mainly attributed to the Bank of England (BoE) gaining support for its recent bond-buying programme aimed at addressing a financial stability concern.
In this week’s economic news, the EU releases its final Consumer Price Index for September 2022.
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Commodities
Source: Bloomberg. Click to see full size.
XAU/USD broke its two-week winning streak and experienced its worst week in nearly 2 months. The yellow metal dropped by more than 2% for the week. Consumer prices in the US increased more than expected in September, providing the Fed with ammunition to raise rates again.
Meanwhile, a strong US dollar impacted silver 8 days in a row, which has fueled hopes that the Fed will announce a fourth consecutive 75bps rate hike in November. The CPI figures also confirm that inflation pressures remain consistent, enabling the Fed to keep raising interest rates.
Moreover, following a set of downbeat macroeconomic data, traders are becoming more wary of the greenback as a safe haven.
Oil dropped by more than 3% on Friday, 14 October 2022. Despite the production cutbacks offered by the Organization of the Petroleum Exporting Countries (OPEC+) to reduce supply and increase oil prices, the value of oil dropped due to concerns about a worldwide recession and sluggish oil demand, notably in China.
Cryptocurrencies
Source: Bloomberg. Click to see full size.
The global cryptocurrency market experienced slight volatility as traders’ sentiments shifted during the week. Currently, the total cryptocurrency market capitalisation is near $900 billion.
On Thursday, 13 October 2022, Bitcoin plummeted from $19,100 to a multi-week low of $18,400 due to the latest US inflation numbers release. The cryptocurrency then bounced back and climbed to reach almost $20,000 for the first time in over a week, resulting in increased market volatility. At Sunday’s close, the largest cryptocurrency in the world by market capitalisation was trading at $19,336.61.
Ethereum, on the other hand, was trading sideways and initially couldn’t breach its resistance level at the $1,300 level. However, it successfully surpassed that mark towards the end of the week, and was trading at $1,310 at the time of writing.
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US stock markets
|
Name of the index |
Friday’s close |
*Net change |
*Net change (%) |
|
Dow Jones Industrial Avg (Wall Street 30) |
29,634.83 |
338.04 |
1.15% |
|
Nasdaq (US Tech 100) |
10,692.06 |
-347.41 |
-3.15% |
|
S&P 500 (US 500) |
3,583.07 |
-56.59 |
-1.55% |
Source: Bloomberg
*Net change and net change (%) are based on the weekly closing price change from Friday to Friday.
Most major indices were down as third-quarter earnings season began, and traders analysed inflation data and its implications for the Fed’s policy. Concerns about the impact of aggressive rate hikes, the escalating war between Russia and Ukraine, and China increasing its COVID-19 measures all contributed to the price decline.
Sectors like consumer staples and healthcare rallied, while consumer discretionary and communication services shares underperformed, with Amazon, Tesla, and Meta Platforms leading the decline.
Despite the Fed raising interest rates 5 times this year, the CPI for September released on Thursday, 13 October 2022, revealed that major inflationary factors aren’t slowing down. The annual CPI rate in September dipped to 8.2% from 8.3% the previous month. Core inflation, excluding volatile food and energy costs, climbed to a higher-than-expected 6.6%, the highest increase in 4 decades.
At the start of this year, the International Monetary Fund predicted a 3.8% global economic growth in 2023. However, it has reduced its growth forecast to 2.7%, warning of the possibility of recessions in many nations if policymakers fail to handle inflation concerns properly.
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