Weekly Market Wrap 18/11/2022

UK Inflation soars to a 41-year high, as Jeremy Hunt attempts to restore some trust in the government with a new budget that seeks to repair the damage done by Kwasi Kwarteng’s minibudget earlier this year. Retail sales data surprises in both the UK & US, as the US sees another sign that inflation may be past its worst.

Geopolitical tensions rose after two missiles that landed in Poland were initially feared to be an escalation of the Ukraine conflict into NATO territory.

The collapse of the FTX exchange shook the cryptocurrency market, as the company fell from a $32 billion valuation to zero in a matter of days. Within hours of the bankruptcy filing the exchange was hacked and c.$500m was stolen.

UK Market   

The UK market ended the week positive. The much-awaited UK budget was unveiled this week by Chancellor Jeremy Hunt, the announcement overturned most of the changes made in the infamous mini budget seen in September. Markets were not surprised by the details of the budget, as significant tax rises and spending cuts were announced as expected. UK CPI data offered a significant upside surprise, coming in at 11.1% whereas economists had forecast a reading of 10.7%. This figure is the highest in the UK since 1981 and has reaffirmed the case for another big rate hike by the BoE, with 50bps strongly expected in December, taking the bank’s rate to 3.50%. UK retail sales data released on Friday showed a better than expected recovery in October, rising by 0.6% rather than the estimated 0.3%. Despite the small increase, sales still remain below pre pandemic levels and consumer confidence is still near record lows.

US Markets 

The S&P 500 is currently ending the week down 1.16% at 3,946 and the NASDAQ down 1.58% at 11,144. US retail sales beat expectation this week, rising by 1.3% ahead of the 1.0% economist consensus, whilst PPI (Producer Price Index) data offered a downside surprise, reinforcing the case that inflation may have peaked in the US. These two data points give strength to opposite sides of the debate for the Fed’s next move, strong retail data may lead the Fed to believe that the US economy could withstand another large hike, whereas a fall in PPI could demonstrate that inflation is already falling, and the Fed is able to begin reducing the pace of future hikes.

European Markets   

The Euro Stoxx 50 is currently up 1.62% to 3,931, the DAX is up 1.49% at 14,436 whilst the CAC 40 gained 1.00%, reaching 6,659. European Central Bank president Christine Lagarde once again said on Friday that interest rates may need to be increased to a level where rates begin to negatively impact economic growth. The ECBs deposit rate is currently 1.5% and markets are pricing in a 75bps increase in December. Fears that the war in Ukraine could expand to become a more global issue were heightened on Tuesday after two missiles landed in Poland, killing two people. After a thorough investigation it was concluded that the missile was mostly likely launched by Ukraine and was being used to defend the country from another wave of Russian attacks. Markets were relieved to hear NATO confirm that there was “no indication” that this was a deliberate attack on Poland and that Russia is not thought to be preparing actions against NATO territory.

Fixed Income  

Yields on the US 10-Year were flat this week at 3.80%, as US retail sales rose by more than expected in October, reinforcing the Fed’s case for another rate hike in November, with 50bps currently priced in.

Commodities 

Brent Crude fell 8.36% this week to $87.98 per barrel, as concerns regarding Chinese demand grew as Covid-19 cases in the country continued to rise.

The Week Ahead   

Monday – China Interest Rate Decision

Tuesday – Canada Retail Sales

Wednesday – FOMC Minutes

Thursday – Japan CPI

Friday – German Consumer Confidence

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