Weekly Market Wrap 12/08/2022

US CPI came in lower than expected on Wednesday, giving global stocks a major boost as the market believed that the rate of inflation may finally be beginning to subside. Equity markets rallied after seeing this data and rate expectations have begun to slightly drop. The UK economy contracted less than expected in June, albeit a recession still looks very likely. Tensions between the US and China remain heightened after a number of Chinese state-owned companies delisted from the US exchange and China pulled out of a number of climate change and international economic agreements. Climate change is currently forefront of many minds with record temperatures and widespread drought as the US looks set to approve Biden’s $700bn climate, health and tax bill. 

US Markets 

The S&P 500 is currently ending the week up 1.5% at 4,207 and the NASDAQ is up 0.64% at 13,291. Wednesday’s CPI data showed an 8.5% YoY increase in July, slightly below an expected figure of 8.7% and down from the previous reading of 9.1%. US markets rallied on Wednesday as investor expectations of another 75-basis point rate hike at the Fed’s next meeting subsided. A 50-basis point move is now expected, and if future economic measures continue to build the case that the US economy is slowing, we could see a significant drop in the pace of hiking. The House of Representatives is set to approve Biden’s $700bn climate, health and tax bill which will mark significant legislative victory and mark a steep change in how the US approaches climate policy. 

UK Market   

The UK market ended the week positive. The UK economy contracted by 0.6% in June, less than the 1.3% drop forecast by economists. Consumer discretionary suffered the most, with restaurants and large parts of retail struggling. Exports have also suffered, with June’s trade deficit growing to £22.85B. Despite an upside surprise on this data, the UK is still widely expected to enter a recession before the end of 2022, as soaring energy costs heap pressure on consumers and accelerate the cost-of-living crisis in the UK. The Bank of England may be set for a thorough review, after Liz Truss, who is currently the front runner to be the UK’s next Prime Minister heavily criticised the central bank. A review could see changes to the bank’s mandate as well as overall independence.  

European Markets   

The Euro Stoxx 50 rose 1.31% to 3,774, the DAX was up 1.54% at 13,782 whilst the CAC 40 gained 1.43%, reaching 6,564. Eurozone industrial production was higher than expected for June, showing a 0.7% monthly gain, well above the mean estimate of 0.2%. Meanwhile, Inflation still persists as a large issue for many European nations, Spanish CPI rose 10.8% in July, the highest rate since 1984 whilst a survey of German consumers showed that 40% of households (the highest figure ever) expected to be worse off in 12 months’ time due to higher inflation. The United Nations has called for a demilitarized zone to be put in place around a Ukrainian power plant in order to avoid a nuclear disaster occurring in the region. 

Fixed Income  

Yields on the US 10-Year Treasury rose to 2.87%, despite hiking expectations for the Federal Reserve falling slightly after US CPI came in below estimates. 

Commodities 

Brent Crude gained 3.5% this week, taking prices to $98 per barrel, as fears of a drop in demand due to higher rates and inflation were somewhat eased as US CPI came in below estimates.  

The Week Ahead   

Monday – China Retail Sales 

Tuesday – UK Unemployment 

Wednesday – UK CPI, EU GDP & FOMC Minutes 

Thursday – US Initial Jobless Claims 

Friday – UK Retail Sales 

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