Week 33 in Brief
North America
Equities in the US extended their losses on Friday to end the week in losses, following four weeks of gains. This was the worst performance for US indices since early July, reflecting investors’ concerns over the next move by the US fed on how aggressively the policymakers may raise interest rates in the coming months.
With the Jackson Hole symposium for central bankers set for this week, investors will be keen to follow what will transpire, as the summit is often used as a platform for the Fed, the world’s most influential central bank, to make big announcements on its policy stance.
How did the major indices perform?
On Friday:
- The Dow Jones Industrial Average DJIA fell 292.30 points, or 0.9%, to close at 33,706.74.
- The S&P 500 SPX dropped 55.26 points, or 1.3%, to finish at 4,228.48.
- The Nasdaq Composite COMP slid 260.13 points, or 2%, to end at 12,705.22.
For the week:
- The Dow slipped 0.2%,
- The S&P 500 fell 1.2%
- The Nasdaq dropped 2.6%.
What drove the U.S. market?
- Contrary to what has happened in the last four weeks, a jump in Treasury yields this week led investors to reassess their stance on how the US fed would react, with the emergence of a possibility of the policy-maker sticking with its aggressive monetary policy tightening as it battles high inflation.
- The yield on the 10-year Treasury note jumped 10.8 basis points Friday to 2.987%, the highest since July 20 based on 3 p.m. Eastern Time levels.
- Investors are therefore assessing the odds of the Fed potentially raising its benchmark rate by 75 basis points, instead of the earlier predicted 50 basis points raise, at its upcoming September meeting.
- Sectors within the S$P 500 that were hit the hardest include the S&P 500’s consumer-discretionary, communication-services, and the Information-technology sector. Growth stocks and stocks in the financial sector also fell sharply with the ever-looming possibility of a slower economy with tighter monetary policies expected.
- Economic activity in Europe, especially the sharp rise in Germany’s producer prices that was reported Friday, influenced US investors’ activities in the markets as global inflation and ever-rising interest rates point to a global economic slowdown.
How did the European markets perform?
- Shares in Europe fell on Friday to end the week in losses. The main driver for the markets was Germany’s producer prices in July, which recorded its highest ever jump, effectively dropping sentiment over the economic outlook for the region’s biggest economy.
- Rising energy prices, which rose 105% compared with July 2021, pushed German production costs to their highest ever increases both year-on-year and month-on-month.
- Germany’s DAX (.GDAXI) lost 1.1%, falling the most among its continental peers, and its 10-year yields rose to their highest in four weeks.
- The pan-European Stoxx 600 ended 0.8% lower, with travel and leisure stocks leading losses, down 3%. Health care stocks recorded gains, adding 0.7%.
- Investors in the region have also raised their expectations to a maximum for a 50 basis points rise in September, compared to the 50% chance of such a move priced in early August. A section of analysts expects an even higher interest rate at 75 basis points.
- In individual equities, Just Eat Takeaway.com was the biggest winner for the week, with the shares rising 25.8%, the highest in the STOXX 600 index. This was after the company agreed to sell a 33% stake in Brazil’s iFood to technology investor Prosus (PRX.AS) for up to 1.8 billion euros ($1.8 billion).
How did Asian markets perform?
- Indian equity benchmarks BSE Sensex and NSE Nifty50 made a sharp U-turn in a volatile session on Friday, as losses in financial and oil & gas shares offset gains in IT shares.
- Broader markets also gave up initial gains, with the Nifty Midcap 100 and Nifty Smallcap 100 indices finishing more than one percent each.
- Added concerns about the health of China’s economy saw MSCI’s broadest index of Asia-Pacific shares outside Japan ease 0.3%, to be down 1.1% on the week.
- Chinese blue chips were flat, while South Korea lost 0.5%. Japan’s Nikkei fared better with a 0.3% gain due in part to a renewed slide in the yen.
Bonds and Commodities
- US treasury yields moved up on Friday, which pushed stock markets lower as investors expect a higher interest raise in the coming weeks.
- The yield on the benchmark 10-year Treasury note was last up about 9 basis points at 2.974%
- The yield on the 30-year Treasury bond traded up 7 basis points to 3.213%. Yields move inversely to prices, and a basis point is equal to 0.01%.
- The yield on the short-term 2-year Treasury note also traded marginally higher at 3.238%.
- In UK government bonds, the ten-year gilt yields gained 0.11 percentage points to 2.42%, after the country’s retail sales data showed a month-on-month rise of 0.3% in July.
- In commodities, oil prices were a little steadier on Friday, but still down on the week with Brent having touched its lowest since February at one point on concerns about demand.
- Brent was up a slim 2 cents at $96.61, while U.S. crude rose 5 cents to $90.55 per barrel.
Currencies
- The Indian rupee slipped against the U.S. currency on Friday to trade at 79.7350 per U.S. dollar by Friday evening local time, down from 79.6725 in the previous session.
- In Europe, the gloomy economic outlook has seen the euro drop almost 1.7% in the week to $1.0078 and back toward its July nadir at $0.9950.
- The dollar has also gained 2.0% on the yen this week to reach 136.28, the highest since late July.
- Sterling was another casualty, losing 1.8% for the week to $1.1917. Investors fear inflation in Britain at a stratospheric 10.1% will lead the Bank of England (BoE) to keep hiking.
Next week
For next week, the most anticipated economic activity will be the meeting of the Federal Reserve policymakers, who will meet at the U.S. central bank’s annual Jackson Hole Symposium on thursday to discuss the most pressing issues facing the U.S. economy.
On Friday, the latest update to the Personal Consumption Expenditures (PCE) Price Index, which could possibly indicate whether inflation has peaked, will be released. The University of Michigan is expected to release the final August reading of its Consumer Sentiment Index (MCSI) on the same day.
In terms of earnings, several companies are scheduled to release their reports in the week. They include Zoom Video Communications, Macy’s, Nordstrom, NVIDIA, Salesforce, Dell, and TD Bank, among others.