Week 49 in Brief
Stocks on Wall Street fell on Friday following a dismal week in US stocks. Treasury yields were also higher after data on U.S. producer prices raised conflicting views, stirring hope of moderating inflation but also fears the Federal Reserve will need to keep interest rates higher for longer.
Data by the U.S. Labor Department showed the producer price index (PPI) for final demand rose 0.3% last month and increased 7.4% in the 12 months through November, while the PPI for October was revised up to 0.3% from 0.2%.
Investors have now turned their attention toward the consumer price index due out Tuesday, which is expected to show whether inflation has receded. The Federal Reserve will likely deliver a 50 basis point hike at the end of its December meeting on Wednesday. While the increase would be smaller than the previous four hikes, concerns have mounted over whether the central bank can architect a soft landing and prevent a recession.
How did the major indices perform?
- The Dow Jones Industrial Average shed 305.02 points, or 0.9%, to close at 33,476.46.
- The S&P 500 tumbled 0.73% to end at 3,934.38,
- The Nasdaq Composite fell 0.7% to finish at 11,004.62.
For the week:
- The Dow fell 2.77% to post its worst week since September.
- The S&P tumbled 3.37%,
- The Nasdaq dropped 3.99%.
What drove the U.S. market?
- Movements lower in the equities markets in the US on Friday came after November’s producer price index showed higher-than-expected wholesale prices, which rose 0.3% last month and 7.4% over the previous year. Core PPI, which excludes food and energy, also topped expectations.
- Optimistic consumer sentiment data alleviated some fears, but attention remains laser-focused on next week’s busy economic calendar.
- Lululemon shares fell Friday after the athleisure maker issued a weaker-than-expected outlook. Morgan Stanley still sees a lot of good in the stock, however, and raised its price target on it Friday.
- Elon Musk said on Friday through a tweet that any economic downturn would be more severe if the Federal Reserve tightens policy again next week.
- Shares of Beyond Meat dropped nearly 9% after being downgraded to sell from hold by Argus, which cited falling demand.
- DocuSign’s stock rallied16.3% after reporting upbeat quarterly results, as well as better-than-expected billings, subscription renewals and additional sales to existing customers.
How did the European markets perform?
- It was a relatively muted week for stocks in Europe but that could change next week as a host of significant risk events are coming down the pike, including the U.S. Federal Reserve and Bank of England’s next monetary policy meetings.
- Stocks ended higher on Friday in Europe as The pan-European Stoxx 600 index closed up 0.8%, with construction and material stocks adding 1.8% to lead gains. Oil and gas stocks pared earlier losses to end the session marginally negative.
- European oil and gas stocks were down 0.8% in early afternoon trade, while all other sectors were buoyant.
- This week saw the start of the EU’s embargo on Russian crude oil purchases, and as the bloc, along with the G-7 and Australia, rolled out a price cap on Russian seaborne oil.
- The U.K. government on Friday announced extensive reforms to financial regulation that it says will overhaul EU laws that choke off growth.
- Shares of Carl Zeiss Meditec plunged more than 10% in early trade after the German medical technology company issued a weak first-quarter profit outlook.
- At the top of the European blue chip index, British investment manager Man Group climbed 4.7% after announcing a $125 million share buyback program.
How did Asian markets perform?
- Asian stocks perhaps made recorded the largest gains among global stocks in reaction to the China’s inflation and the upward movement in Wall Street a day earlier.
- The Hang Seng Index led charge as Hong Kong’s market was up by 2.32% and closed at 19,900.87 with a gain of 450.64 points. The Hang Seng Tech Index rose 2.45%, Mainland China’s Shenzhen Component by 0.5% and Shanghai Composite by 0.3%.
- Japan’s Nikkei 225 closed up 1.18 percent at 27,901.01, S&P/ASX 200 in Australia 0.53 percent at 7,213.2 and Kospi in South Korea 0.76 percent at 2,389.04.
- On Thursday too, Hong Kong’s Hang Seng was up by 3.50 percent (658.46 points) after media reports suggested that the city was considering further easing the Covid restrictions.
- Similarly, the Hang Seng Tech index added around 6 percent — bucking the trend in the wider Asia-Pacific region, which were weighed down by continued recession fears.
Bonds and Commodities
- Treasury yields rose, suggesting higher rates ahead for the long term, with the benchmarket 10-year yield up 10.2 basis points to 3.595%.
- The two-year note , which often moves in step with rate expectations, rose 3.2 basis points to 4.344%.
- The yield curve measuring the gap between yields on two- and 10-year notes , a recession harbinger, was at -75.5 basis points.
- Oil prices rose but both benchmarks were set for a weekly loss as worries over a weak economic outlook in China, Europe and the United States weighed on oil demand.
- U.S. crude futures fell 44 cents to settle at $71.02 a barrel. Brent settled down 5 cents at $76.10.
- Gold prices rose despite an uptick in the dollar and Treasury yields as some investors still expect the Fed will slow the pace of rate hikes from early next year.
- U.S. gold futures settled 0.5% higher at $1,810.70 an ounce.
- The dollar was broadly weaker overnight, but reversed some of its losses after the PPI report.
- Against the dollar, the euro was 0.1% lower at $1.05465, though the common currency was still on track for a third straight week of gains.
- Sterling rose to a four-day high up 0.3% to $1.2273 ,as the British government announced reforms designed to maintain London as one of the most competitive financial hubs in the world and the yen was flat to 136.68 per dollar.
- In cryptocurrencies, bitcoin, which have come under intense selling following the high-profile collapse of crypto exchange FTX, was down 0.5 % at $17,142, after hitting a four-day high of $17,353 earlier in the session.
The spotlight next week will be on the latest inflation figures due Tuesday and the Fed’s two-day policy meeting, with central bankers expected to announce an interest rate decision and near-term projections for the U.S. economy on Wednesday.
On Thursday, the U.S. Census Bureau will also report on November retail sales, indicating whether consumer spending remained solid last month. On Friday, S&P Global will release the flash estimate for its Composite Purchasing Managers’ Index (PMI) for December.