Weekly Market Wrap 21/10/2022

The UK will have another new leader after Liz Truss’ resignation made her the UK’s shortest serving prime minster of all time. Rishi Sunak and former Conservative leader Boris Johnson are the clear favorites for the position. UK CPI came in higher than expected whilst retail sales data missed estimates, leaving an increasingly difficult task ahead for the UK’s new leader. European stocks begin to feel the effects of a potential recession, whilst key US bond yields hit 15 year highs as another big rate move by the Federal Reserve is expected.  

UK Market   

The UK market ended the week higher. On Wednesday UK inflation data came in slightly ahead of expectations at 10.1% YoY, up from August’s figure of 9.9%. Food prices were a key element of the soaring costs, as food costs rose the most in September, increasing by 14.6%. The UK will have yet another new Prime Minister after Liz Truss resigned on Thursday after just 44 days in office, becoming the UK’s shortest serving Prime Minister. Former Chancellor Rishi Sunak and previous Prime Minister Boris Johnson are now favourites to become the next conservative party leader. The new PM is expected to be confirmed by Friday 28th October, with the new chancellor set to lay out the UK’s medium term fiscal plan on the 31st. UK retail sales data showed a larger than expected fall of 6.9% YoY (est 5%) as consumers cut spending ahead of a winter that is expected to be dominated by the UK’s cost of living crisis.  

US Markets 

The S&P 500 is currently ending the week up 2.31% at 3,665 and the NASDAQ is up 2.84% at 10,614. US initial jobless claims unexpectedly fell this week, coming in below expectations at 214,000 (est 230,000) showing a fall of 12,000. This data reinforced traders view that the Fed will deliver yet another 75bp hike in November, which pushed US 10-year yields to 15 year highs whilst growth stocks pushed lower in pre-market trading on Friday. Snapchat’s Q3 earnings cause heavy losses for the stock after it was revealed that advertisers have begun cutting their spending due to inflation concerns, this lead other social media stocks lower in early Friday trading. 

European Markets   

The Euro Stoxx 50 is currently up 2.05% to 3,451, the DAX is up 1.69% at 12,646 whilst the CAC 40 gained 1.16%, reaching 6,000. European markets fell on Friday after a number of company earnings reports added to fears of an economic slowdown in Europe. Adidas cut its full year guidance, blaming lower expected demand in western markets whilst European auto makers are cautious as demand for high value cars is expected to decline significantly in a potential recession next year. 

Fixed Income  

Yields on the US 10-Year rose by 0.29% to 4.29%, the highest level seen since 2007. The federal reserve is strongly expected to deliver a fourth consecutive 75bp rate hike at the Fed’s November meeting. 

Commodities 

Brent Crude gained 1.40% this week to $92.90 per barrel, as oil markets continue to weigh up the potential drivers of demand. Potential further covid rule relaxations in China could boost demand whilst continued higher rates are viewed as a threat to energy consumption. 

The Week Ahead   

Monday – Europe & UK Manufacturing PMIs 

Tuesday – ECB Bank Lending Survey 

Wednesday – China GDP & Retail Sales 

Thursday – ECB Interest Rate Decision & US GDP 

Friday – German CPI % BoJ Interest Rate Decision 

*Price changes as of last week’s close unless stated otherwise.