Weekly Market Wrap 14/10/2022

US CPI came in higher than expectations this week, sparking a volatile trading day on Thursday as well as reinforcing the Fed’s view that a further large rate hike is required at the November meeting. The UK is set to reverse parts of its controversial mini budget after widespread criticism, whilst finance minister Kwasi Kwarteng has been sacked after just 38 days in the position. UK unemployment fell as the data issued a sharp warning for UK businesses. Eurozone inflation data gave mixed readings this week as the ECB looks set to deliver another significant interest rate increase. 

US Markets 

The S&P 500 is currently ending the week down 0.99% at 3,669 and the NASDAQ is flat at 10,649. US CPI data released on Thursday came in slightly ahead of expectations at 8.2%, whilst the consensus estimated a figure of 8.1%. Despite showing a fall in the pace of inflation, the data caused US futures to fall heavily ahead of the open on Thursday, however US markets ended the day more than 2% higher, with the S&P 500 showing the fifth largest intraday reversal from a low. The higher than expected CPI print has caused markets to price in a fourth consecutive 75bps rate hike at the Federal Reserve’s next meeting in November. 

UK Market   

The UK market ended the week lower. The UK government is considering scrapping large parts of the recent mini budget after large and seemingly unfunded tax cuts were openly criticised by a number of respected institutions and caused the pound to drop to an all-time low against the US dollar. Chancellor Kwasi Kwarteng cut short his trip to Washington in order to discuss a potential reversal of cuts, however, was sacked from the position immediately upon returning. Kwarteng became the second shortest-serving UK chancellor as the government continues to surround itself in controversy. UK stocks and the pound rallied on Friday upon hopes of a U-turn. Data released on Tuesday showed that UK unemployment fell to 3.5% in August, driven by a record number of people leaving the labour market due to long-term sickness, with many UK business left struggling to recruit new staff. UK CPI data will be released next week and is expected to show an increase back above 10%. An upside surprise could lead the Bank of England to deliver a very large interest rate increase in November. 

European Markets   

The Euro Stoxx 50 is currently up 0.65% to 3,397, the DAX is up 1.47% at 12,453 whilst the CAC 40 gained 1.44%, reaching 5,951. The eurozone announced its largest trade deficit since 2015 in August, as high energy prices cause import costs to accelerate. In August the cost of exports increased by 24% YoY and was the tenth consecutive month of a negative balance. German wholesale prices rose 19.9% YoY in September, driven by higher costs for materials, whilst Spanish inflation came in below estimates at 9% YoY for September. Slovak central bank chief Peter Kazimir told investors that the ECB “won’t stop at the neutral rate” and insisted that another 75bps increase in October would be appropriate. 

Fixed Income  

Yields on the US 10-Year were flat this week at 3.88%, despite higher than expected inflation data. UK 10-year yields fell back below 4% after reports that tax plans would be reversed. 

Commodities 

Brent Crude fell by 4.53% this week to $93.50 per barrel, as fears of global recession pushed demand expectations lower, despite last week’s production cut. 

The Week Ahead   

Monday – China Trade Balance & Italy CPI 

Tuesday – China GDP & Retail Sales 

Wednesday – UK CPI & Canada CPI 

Thursday – China Interest Rate Decision & US Jobless Claims 

Friday – UK Retail Sales 

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