Weekly Market Wrap 10/02/2023

Equity markets finished the month of January on a high and continued to rally as market optimism on all fronts continues from January’s strength. Despite recent performance, global markets appear to be much more conservatively valued on a simple PE basis than recent exuberance.  

Hawkish comments from the US Fed led fixed income investors to readjust expectations on how quickly global central banks will shift from a tightening cycle to a more accommodative monetary policy. 

A massive earthquake on Monday in south-eastern Turkey has led to tens of thousands of deaths across Turkey and Syria. Rescue efforts continue but there is mounting frustration at the delays to aid efforts. 

UK Market   

The UK market ended the week lower, as the UK narrowly escaped recession, showing 0% GDP growth in Q4 of 2022. However GDP did decline in December, falling by 0.5% rather than the expected 0.3%. The Bank of England still forecasts that the UK will enter a shallow recession that will last throughout 2023 as rate increases and persistent high inflation hold back the UK economy. Next week will see the latest release of UK CPI, estimates currently predict inflation to drop to 10.3% from 10.5% in December, still significantly ahead of the BOE’s 2% inflation target. 

US Markets 

The S&P 500 is currently ending the week down 1.33% at 4,081 and the NASDAQ is down 1.53% at 12,381 US markets were pushed lower as several Federal Reserve officials this week commented that more interest rate increases are likely to be seen in the coming months. New York Fed President John Williams stated that a federal funds rate of 5.00% to 5.25% “seems very reasonable” whilst Chairman Powell said that rates may need to go higher than previously expected. Tensions between the US and China have escalated after a surveillance balloon was shot down after being spotted flying over US territory. The discovery has led to US Secretary of State Anthony Blinken cancelling a planned visit to China. US CPI will be released next Tuesday, with markets hoping to see a persistent and strong decline in inflation.  

European Markets  

The Euro Stoxx 50 is currently down 1.71% at 4,185, the DAX is 1.25% lower at 15,387 whilst the CAC 40 has lost 1.89% to 7,097. Ukraine President Volodymyr Zelensky undertook a surprise visit to the UK, meeting with PM Rishi Sunak and addressing the UK Parliament. Zelensky is requesting that Ukraine’s allies provide fighter jets to help their efforts as Russian attacks persist. Croatian central bank Governor Boris Vujcic, the ECB’s newest policymaker has stated that the ECB needs to keep raising interest rates and hold them at high levels even as inflation heads lower.  

Fixed Income  

Yields on the US 10-Year rose slightly this week to 3.70%, after last week’s jobs data and hawkish commentary from Fed officials led to expectations of higher rates. 

Commodities 

Brent Crude gained 8% this week to $86 per barrel, pushed higher by reports that Russia plans to cut oil output by 500,000 barrels per day (5%) in retaliation to price caps imposed by the west.  

The Week Ahead   

Monday – Japan GDP 

Tuesday – US CPI  

Wednesday – UK CPI, US Retail Sales 

Thursday – US PPI, US Initial Jobless Claims 

Friday – UK Retail Sales  

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