Weekly Market Wrap 16/09/2022

Tuesday saw US stocks experience their biggest one day fall since June 2020 after higher-than-expected US inflation data, whilst UK data surprised to the downside. Worse than expected UK retail sales data reignited fears of an economic slowdown, as reports from the IMF and the World Bank have warned about the outlook for the global economy. Next week, both the Bank of England and the Federal Reserve will announce their next interest rate moves. Whilst increases are widely expected from both central banks, investors will watch closely for clues in commentary that could shed light on the future interest rate trajectory. 

US Markets 

The S&P 500 is currently ending the week down 4.08% at 3,901 and the NASDAQ is down 5.25% at 11,927. US CPI came in at 8.3% on Tuesday; economists had expected a reading of 8.1%. Although a fall from the previous reading’s 8.5%, this week’s measure did not provide the Federal Reserve with clear evidence that inflation is consistently falling, as investors hoped it would. The majority of economists expect the Fed to hike rates by 75bp at next week’s meeting for a third consecutive time. US Futures were pushed lower on Friday morning as reports from the IMF, World Bank and FedEx issued reports that estimate slowdowns in many major economies. 

UK Market   

The UK market is set to end this week lower, ahead of Monday’s bank holiday that will mark the funeral of Queen Elizabeth II. UK Inflation eased unexpectedly in August, with YoY CPI falling to 9.9%; a slight increase to 10.2% was expected. Whilst economists still expect UK inflation to rise again, the energy price cap implemented by new Prime Minister Liz Truss has caused inflation expectations to peak at 13%. UK retail sales data released on Friday showed that sales fell significantly more than expected, dropping by 1.6% MoM in August whilst the estimated drop was just 0.5%. The UK’s growing cost of living crisis has eaten away at consumers disposable income and today’s data echoes the sentiment of trading updates by a number of UK retailers who have all issued profit warnings, driven by concerns around the strength of consumer demand. The Bank of England will announce its next interest rate move next Thursday, with the consensus leaning strongly in favour of a 50bp hike, which would take the BoE rate to 2.25%. 

European Markets   

The Euro Stoxx 50 is currently down 1.52% to 3,486, the DAX is down 2.32% at 12,783 whilst the CAC 40 lost 1.95%, reaching 6,091. European markets pushed lower this week as recessionary fears were added to by comments released from both the IMF and the World Bank. The World Bank’s chief economist told markets that he was concerned about stagflation in the global economy and that the aftermath of Russia’s invasion of Ukraine was the key driver of changes in outlook. Meanwhile, the IMF estimated that a number of countries would fall into a recession in 2023, however did not confirm that they expected a global recession. The IMF revised global growth outlook for 2023 will be released in October. 

Fixed Income  

Yields on the US 10-Year Treasury rose to 3.45%, as higher than expected US CPI data reaffirmed the Fed’s view that further large rates hikes are still needed to slow inflation. 

Commodities 

Brent Crude fell 2.29% this week, as fears of an economic slowdown once again lower the outlook for global oil demand.  

The Week Ahead   

Monday – UK Bank Holiday 

Tuesday – China Interest Rate Decision 

Wednesday – Fed Interest Rate Decision & FOMC Projections 

Thursday – BoE Interest Rate Decision & US Initial Jobless Claims 

Friday – Eurozone CPI 

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