Weekly Market Wrap 09/12/2022

Global equity markets fell this week as investor fears about a global slowdown took center stage ahead of an incredibly important week, with all three major central banks announcing their latest rate decisions. US and UK CPI figures are also announced next week, with investors hoping to see clear evidence that inflation has now peaked. Meanwhile, Chinese inflation data on Friday showed a drop to 1.6% from 2.1% in October after Chinese officials began to reduce the strict covid-19 restrictions that have been in place for almost 3 years. US data released this week gave conflicting indicators about the state of the economy, whilst UK house prices continued their decline.  

UK Market   

The UK market ended the week negative. UK inflation data will be released next Wednesday and is currently forecast to show a slight decline to 10.9% from the previous figure of 11.1%. Many economists are of the view that UK inflation has now peaked and a noticeable decline in CPI would boost optimism that the Bank of England’s interest rate rises are beginning to have the desired effect. The BoE’s next meeting is on Thursday and a 50bp increase is widely expected, which would take the bank’s base rate to 3.50%. UK financial services regulations are set to be significantly altered as chancellor Jeremy Hunt aims to remove a number of restrictions, including the ringfence rules for certain banks. House prices in the UK fell at the fastest rate seen since 2008 as buying has slowed with mortgage rates rising rapidly as the BoE has increased its base rate to fight inflation.  

US Markets 

The S&P 500 is currently ending the week down 2.70% at 3,961 and the NASDAQ is down 3.50% at 11,062. US markets were troubled this week by stronger than expected services data, which showed that the US economy continues to perform strongly despite aggressive rate hikes by the Federal Reserve. The fact that higher rates have yet to begin slowing down the economy caused some participants to fear that rates could go higher than previously expected in order to curb inflation. US Jobs data was in line with expectations however, showing that the labor market remains tight. The Federal Reserve is also widely expected to raise rates by 50bps to 4.25-4.50%, with the decision coming after Tuesday’s CPI data. Producer prices data released on Friday showed a larger increase than expected, rising by 7.4% whereas only a 7.2% increase was expected. Despite an upside surprise, this figure still supported the view that inflation is peaking, with the October figure showing an increase of 8.1%. 

European Markets 

The Euro Stoxx 50 is currently down 1.03% at 3,937, the DAX is 1.25% lower at 14,348 whilst the CAC 40 has fallen 1.07% to 6,669. European markets treaded water towards the end of the week as investors await the European Central Bank’s latest interest rate decision next Thursday. Markets are pricing in a 50bps rate increase as the ECB looks to bring inflation down from the current double digit levels.  

Fixed Income  

Yields on the US 10-Year rose this week to 3.56% ahead of next week’s CPI data and Fed decision. Economists fully expect the Fed to deliver a 50bps hike. 

Commodities 

Brent Crude fell 10.42% this week to $76.63 per barrel, as the global demand outlook took a further hit, with a surge in Chinese covid cases expected to hurt economic activity. This weekly move takes oil negative for the year, after reaching highs of $127 per barrel in March of this year. 

The Week Ahead   

Monday –  

Tuesday – US CPI Data 

Wednesday – UK CPI Data & Fed Rate Decision 

Thursday – BoE & ECB Rate Decisions  

Friday – UK Retail Sales 

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