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The Long and Short of it, week ending 09 December 2022

Posted: 12 December, 2022

Topic: Telecoms , Financials , Basic Materials , Energy , Industrials , Technology

Publication Type: Market Commentaries

A down week for major stock indexes, reversing some of last month’s strong gains. Investor trepidation in front of this week’s FOMC meeting combined with strong economic data soured investor sentiment, pushing stock prices lower. Monday’s stronger-than-expected ISM Services Index and Factory Output releases set the tone for the rest of the week, driving all 3 major stock indexes 1.5% lower or more on the day. Stock prices moved higher Thursday on no news only to see those gains reversed by a higher-than-expected PPI release Friday. It was a volatile week for the 10-year Treasury rate, climbing 9bps higher Monday, falling 16bps over Tuesday and Wednesday and then adding almost 17bps over Thursday and Friday. The volatility, interestingly, was caused by fluctuations in 10-year inflation expectations and not by fluctuations in 10-year real rates. 10-year real rates gained 26bps over the week, increasing – for the most part - steadily over the week. At week’s end, the S&P 500 Index decreased 3.4% to 3,934.38, the Nasdaq Composite Index dropped 4.0% to 11,004.62, the Dow Jones Industrial Average lost 2.8% to close at 33.475.60, the 10-year U.S. Treasury rate rose 10bps to 3.59% and the U.S. dollar (as measured by the ICE U.S. Dollar index – DXY) appreciated 0.3%.

European stock indexes moved lower last week as well but not as sharply and, at least partly, for opposite reasons. Euro zone data released Monday showing slowing business activity (again) increased recession expectations, moving the STOXX 600 lower. (This is in contrast to the U.S. where strong economic data moved indexes lower). The FTSE 100 Index edged slightly higher Monday, supported by mining stocks benefiting from China’s easing of Covid restrictions. Both indexes moved lower through Thursday with this week’s central bank meetings and decisions increasing market uncertainty and reducing positive investor sentiment. Monday’s strong U.S. economic data reduced expectations of a more benign Fed pushing stock prices lower in the UK and Europe as well. Hawkish comments from ECB officials warning more rate increases will be needed to fight inflation also dampened investor sentiment. Indexes moved higher Friday on renewed China-related optimism though gains in the FTSE 100 Index were muted by falling energy stock prices due to sharply lower oil prices over the week. Friday’s higher-thanexpected U.S. PPI release seemingly had no effect on European markets. At week’s end the FTSE 100 Index fell 1.1% to 7,476.63, the STOXX 600 index decreased 0.9% to 439.13, the 10-year UK government rate increased 3bps to 3.15%, the 10-year Bund rate rose 10bps to 1.92% and the British pound and euro weakened 0.3% and 0.1%, respectively, both versus U.S. dollar.