MAXIN ADVISORS Weekly Market Review addresses the major issue of the moment, reviews the market moves of the past week and monitors the evolution of the MAXIN GLOBAL FUND
The Time Has Come
Over the past year, we have constantly outlined a road map for the US bear market where we would see :
. A first leg down : it happened between January 3rd and June 16th,
. A Bear market rally In July : it happened between June 16th and August 19, a date that we
articulated very precisely,
. A Second leg down that would bottom in October 2022 : It started on Aug 19 and is in process
. A year-end bear market rally, that will start by the middle of November at the latest, and,
. The third and last leg of the bear market that will start in the first quarter of 2023
Last week’s price action confirmed that the time has now come for the last move of the second leg of the bear market to unfold in the coming two to three weeks.
The second leg of bear markets is usually a very sharp one and we already had a taste of how severe this bear market is with the devastating month of September. We had expected the “Pivot rebound” to last another week or so, but the sharp fall at the end of last week points in the other direction.
The first leg of the bear market bottomed at 3636 on June 16 2022. The level was already broken in September with the SP500 marking a lower low at 3585, a sure sign that there is more downside into October.
The key question today is whether the downside target for this second leg is 3505 or 3269, the latter being a final target level that we articulated already months ago, to the surprise of many commentators.
3505 represents the 50 % retracing of the 2020 / 2022 bull market
3269 represents the 61.8 % retracing of the same.
Another way to look at it is to take into consideration the longer term charts and the bull market that started in March 2009. We are currently testing the minor support of 3585 that was the top of September 2020, having clearly broken the 23% Fibonnaci level at 3795 in September.
We are now aiming at 3197 the 38 % Fibonacci retracing of the entire 2009 – 2022 bull market as the next target and ultimate target for the second leg.
But an extension to 2714, the 50 % retracing of this null market cannot be excluded
This is not a time to be long, but the markets can be extremely volatile as we have seen last week. October 2022 should be no different.
A quick look at long term charts
Long term charts are very telling, and September marked a very significant breakdown in the main indexes, confirming the unfolding of the second leg of the bear market.
All these charts are pointing to another sharp move down before that second leg is over, and it is probably going to happen in October and could extend until November 15
… Many of the US mega caps recorded major reversals and breakdowns in September
… the semiconductors down are collapsing …
… what is truly new and highly worrying is the break down in stable, defensive, iconic Dow Jones Industrial companies, a feature confirming that the liquidation phase in now global and expanding to all segments and components of the market.
And the downside is considerable from here, regardless of potential rebounds.
Cryptocurrencies are also on the edge and a sharp move should take place before the 20th of October 2022.
We are entering the earnings reporting season, and it will probably not be good.
Bond yields are still rising, inflation is still at 8 %, the FED is not done hiking rates, and the war in Ukraine is reaching a dangerous point with the Russian army being defeated on the ground and Russians fleeing their country to avoid being enrolled in a war they do not believe in.
Our scenario is for a sharp downdraft in the last weeks of October / beginning of November.
And it is that sharp downdraft and capitulation that my lead the FED to pause, the US dollar to peak at 117 and bond yields to peak.
That will unleash the year-end rally in bind and equities, but only with weak earnings and a recession to haunt valuations again in the first quarter of 2023
Make no mistake, this is a bear market like no others
2020 is already the worst year in all asset classes in 100 years. It is not by accident
The combination of rising inflation and rising rates is an explosive cocktail for valuations when so much debt has been accumulated.
We have already outlined our views that we seeing the beginning of a bear market that could last between 7-20 years, contrary to the preceding ones.
To us, the January 2022 peak is the peak of the 2020-2022 bull market, the 2009 -2022 bull market but also of a bull market that began in 1932
Investors should be considering the high probability that this bear market is one that is going to correct not only the excesses of the 2020-2021 COVID period, not only the unorthodox monetary policies of the 2009 2020 bull market, but it is going to correct a bull market that lasted 90 years and corresponded to the rise of America as the world superpower.
That bull market culminated at extremes of valuations in all US asset classes, speculative bubbles with few equivalent in the past and an accumulation of public and private debt that will ultimately have to be wound up.
This bear market will be all about a collapse in valuations and we see it the bottom somewhere in 2035 with the SP500 having the potential to fall towards 1’000.
Weekly Market Review
9 Oct 2022
World Food Prices Fall for 6th Month
The FAO Food Price Index declined to 136.3 in September of 2022, sharply below a record high of 159.7 hit in March and the lowest since February, when the Russian invasion of Ukraine started. Prices declined sharply for vegetable oils (-6.6%), with the index hitting 152.6, the lowest level since February 2021, on high inventories and rising production in Southeast Asia. Also, sugar prices went down 0.7% as rains benefited yields of standing crops in Brazil, and lower ethanol prices prompted greater use of sugarcane to produce sugar. The dairy cost went down 0.6% and meat cost fell 0.5%, with pricing for ovine meat declining the most, underpinned by the impacts of currency movements. On the other hand, cereal prices increased 1.5% as heightened uncertainty about the Black Sea Grain Initiative’s continuation beyond November and the impact on Ukraine’s exports pushed wheat prices 2.2% higher.
US Economy Adds More Jobs Than Expected in September
The US economy created 263K jobs in September, the least since April of 2021 but above market forecasts of 250K. Still, the number points to a tight labor market with an employment level about 500K above its pre-pandemic level.
US Jobless Rate Unexpectedly Falls
The US unemployment rate fell to 3.5 percent in September 2022, matching July’s 29-month low and remaining below market expectations of 3.7 percent, in another sign overall labor market conditions in the world’s largest economy remain tight. The number of unemployed persons declined by 261 thousand to 5.75 million in September, while the number of employed increased by 204 thousand to 158.9 million. The labor force participation rate edged down to 62.3 percent from 62.4 percent.
US Consumer Credit Rises to 32.24 billion
Consumer Credit in the United States increased to 32.24 USD Billion in August from 23.81 USD Billion in July of 2022. The annual rate of change increased from 6.8% in July to 8.4%. Revolving credit totaled 18.1 billion vs 11.7 billion in the previous month. Non-revolving fell slightly from 5.2 billion to 5.1 billion. The annual rate of the total flow of credit increased from 313.2 billion to 386.9 billion.
US Wholesale Inventories Rise for 25th Month
Wholesale inventories in the US advanced by 1.3 percent from a month earlier to $912.6 billion in August of 2022, matching an initial estimate and after a 0.6 percent increase in the previous month. It was the 25th consecutive month of growth in inventories, as stocks rebounded for non-durable goods (1.2 percent vs -0.1 percent in July), mainly boosted by chemicals (3.8 percent). Also, those of durable goods rose slightly faster (1.3 percent vs 1.1 percent), primarily automotive (5.1 percent). On an annual basis, wholesale inventories grew by 25 percent in August, slightly below an earlier reading of 25.1 percent.
US Wages Growth Steady in September
Average hourly earnings for all employees on private nonfarm payrolls in the US rose by 0.3% to $32.46 in September of 2022, the same pace as in August, in line with market forecasts. In September, average hourly earnings of private-sector production and nonsupervisory employees rose by 10 cents, or 0.4%, to $27.77. Over the past 12 months, average hourly earnings have increased by 5.0%, following a 5.2% rise in the prior month and slightly below market estimates of a 5.1% gain.
Canadian Jobless Rate Unexpectedly Drops
The unemployment rate in Canada eased to 5.2% in September of 2022 from 5.4% in the previous month, beating market expectations of 5.4% and signaling that the Canadian labor market remains tight. The number of unemployed fell by 41,400 to 1,071,600 and long-term unemployment fell by 18,000 to make up for the rise in August. On top of that, employment rose by 21,100 to 19,547,000, beating market estimates and breaking three consecutive months of declines. At industry level, higher employment in educational services (3.2% to 1.48 million) and healthcare and social assistance (0.9% to 2.62 million) offset losses in manufacturing (-1.6% to 1.72 million), and information, culture, and recreation (-2.6% to 0.78 million). Also, employment rose in the public sector (0.8% to 4.23 million), while private sector and self-employed workers were little changed. In the meantime, the labor force participation rate fell by 0.1 percentage point to 64.7%, matching the 14-month low hit in July.
China Forex Reserves Fall to 5-1/2-Year Low
Foreign exchange reserves in China declined by $26 billion to $3.029 trillion in September of 2022, the lowest since March of 2017 and compared to market forecasts of $3 trillion. It was the second straight month of declines mainly due to general dollar strength on expectations the Federal Reserve will continue aggressive policy tightening and global recession fears. Meantime, gold reserves dropped to $104.72 billion at the end of September from $107.49 billion at the end-August.
China Composite PMI Falls to 4-Month Low
The Caixin China General Composite PMI fell to 48.5 in September 2022 from 53.0 in the prior month, pointing to the lowest reading since May. The drop in private sector activity was broad-based across the manufacturing and service sectors, with the former seeing a steeper rate of fall. New orders shrank, amid a renewed drop in services sector sales while new work declined at a quicker pace at goods producers. Employment also fell, and at the steepest rate since February 2021. On the cost side, input prices were the weakest in 28 months. Output charges dropped for the third straight month, due to a solid rate of discounting at manufacturers. “Policy implementation should focus on promoting employment, granting subsidies, as well as boosting demand and confidence by sending policy signals,” said Dr. Wang Zhe, senior economist at Caixin Insight.
China Services Sector Declines
The Caixin China General Services PMI fell to 49.3 in September 2022 from 55.0 in the prior month. This was the first contraction in services activity since May, amid the severity of the COVID outbreaks in many areas across the mainland. New orders shrank for the first time in four months; while employment dropped for the ninth month running, with the rate of job shedding the steepest pace since May and backlogs grew for the second month in a row.
Export orders expanded following an improvement in some foreign markets. On inflation, input cost increased due to greater costs for raw materials and labor. The rate of inflation edged down to the lowest since June and was mild. Meantime, fees charged rose at the quickest pace for five months. Sentiment weakened to a six-month low, on concerns over how long the virus and containment measures will impact operations and customer demand.
Taiwan Trade Surplus Narrows Less than Expected
Taiwan’s trade surplus narrowed to USD 5.02 billion in September of 2022 from USD 6.44 billion in the same month last year, compared to market expectations of USD 4.23 billion. Exports contracted 5.3% year on year to US$ 37.53 billion, well below market estimates of 1.5 percent rise, driven by decreased base metals & base metal articles (-26.6%), and plastics & rubber & articles thereof (-25.2%). However, there was an increase in the parts of electronic product (2.4%). Among major destinations, sales advanced only to ASEAN (5.5%), while declined the most to Mainland China (-13.3%). Meanwhile, imports fell by 2.4 percent to USD 32.51 billion, below analyst forecasts of 7 percent increase, amid declined chemicals (-21.3%), machinery (-16%) and parts of electronic products (-9.8%). On the other hand, purchases of petroleum (112%), mineral products (52.9%) showed an increase. Main decreases were seen in imports from China (-11.9%) and Japan (-18.5%).
Japan Leading Index Highest in 4 Months
The index of leading economic indicators in Japan, which is a gauge of the economy a few months ahead and is compiled using data such as job offers and consumer sentiment, increased to 100.9 in August of 2022 from a final of 98.9 in July. The latest figure was the highest since April, as the lifting of local Covid-19 restrictions boosted consumer and business spending.
Japan Household Spending Grows the Most in 7 Months
Household spending in Japan rose by 5.1% in real terms from the prior year in August 2022, quickening from a 3.4% gain a month earlier and compared with market consensus of 6.7%. This was the third straight month of increase in personal consumption and the strongest pace since January, amid the lifting of COVID-19 restrictions and cash handouts to low-income households. Expenditure accelerated for transport (11.6% vs 7.0% in July), medical care (15.1% vs 9.3%), and culture & recreation (20.6% vs 11.2%), while spending on food rebounded (0.9% vs -1.3%) and that on clothing (8.1% vs 0.6%) and other consumption (5.6% vs flat reading) picked up strongly. Meantime, expenditure on education slowed sharply (7.0% vs 16.2%), amid falls in spending on housing (-2.5% vs 19.0%), fuel, light & water charges (-3.1% vs -2.1%), and furniture (-10.8% vs -5.6%).
Japan Foreign Reserves Drop After Intervention
Foreign exchange reserves in Japan decreased by a record to $1.238 trillion in September 2022 as the government conducted its first currency intervention in 24 years during the period to arrest the yen’s sharp depreciation. The figure compared with $1.409 trillion in the same month last year and $1.292 trillion in August 2022, falling for the second straight month both on a year-on-year and month-on-month basis. Latest data from the Ministry of Finance showed that Japan spent up to a record of 2.8 trillion yen in its intervention efforts last month, while investors await daily intervention data for the July-September period set to be released in November. Total reserve assets were broken down into: foreign currency reserves ($1.121 trillion), IMF reserve position ($9,832 million), SDRs ($57,450 million), gold ($45,470 million) and other reserve assets ($3,920 million).
UK Q2 Labor Productivity Revised Higher
Labor productivity in the United Kingdom, as measured by output per hour worked, rose by 0.3 percent on quarter in the three months to June 2022, compared with a preliminary estimate of a flat reading and following a 0.6 percent decline in the previous period. It was also 1.8 percent above its pre-coronavirus (COVID-19) pandemic levels. The latest 0.3 percent increase in productivity reflected a 0.1 percent drop in hours worked and a 0.2 percent growth in gross value added. Year-on-year, labor productivity grew by 0.4 percent during the second quarter. Over the same time period, output per worker and output per job grew by 2.8 percent and 2.7 percent, respectively, suggesting little movement in the ratio of jobs to workers through this period.
UK House Price Growth Eases to 8-Month Low
The Halifax house price index in the United Kingdom increased 9.9% year-on-year in September of 2022, returning to single-digits for the first time since January, the lowest level in eight months. Compared to the previous month, house prices edged down 0.1%, falling for the second time in three months, bringing the average price to £293,835, from the previous month’s record high of £293,992.“ The prospect of interest rates continuing to rise sharply amid the cost of living squeeze, plus the impact in recent weeks of higher mortgage borrowing costs on affordability, are likely to exert more significant downward pressure on house prices in the months ahead,” Kim Kinnaird, director of Halifax mortgages, said.
German Import Prices Rise the Most Since 1974
Import prices in Germany increased by 32.7% year-on-year in August of 2022, beating market forecasts of 29.9%, and pointing to the highest increase since March 1974. Cost of imported energy surged by 162.4%, mainly natural gas (306.3%), coal (192.1%), and crude oil (58.8%). Excluding energy, prices of imports increased by 30.1%, namely fertilizers and nitrogen (145.1%), aluminum (50.3%), and paper and cardboard (40.1%). Prices of imported consumer goods increased 13.4%, mainly due to food (24.1%) and capital imported goods were 7.8% more expensive than a year earlier, largely machines (8.6%) and motor vehicles (7.0%). Compared to the previous month, import prices rose 4.3%, above market consensus of a 2% gain.
Germany Retail Sales Fall Faster than Expected
Retail sales in Germany shrank 1.3% month-over-month in August of 2022, following a downwardly revised 0.7% rise in July and compared to market forecasts of a 1.1% decline. Retail sales data continue to point to a squeeze in consumer spending as price increases weigh on affordability. Sales were down for both food (-1.7%) and non-food (-0.5%), namely textiles, clothing and shoes (-1.1%), furniture, household appliances and building supplies (-1.1%). On the other hand, sales at petrol stations jumped at a record 14%. Year-on-year, retail sales declined 4.3%.
Germany Industrial Output Remains Subdued
Industrial production in Germany fell 0.8% month-over-month in August of 2022, following a revised flat reading in July and compared to market forecasts of a 0.5% fall. The output declined for intermediate goods (-2.4%) and in energy-intensive industrial activities (-2.1%) while manufacture of chemicals, coke and refined petroleum was probably affected by constraints on waterways transport of goods caused by very low water levels. On the other hand, production rose for consumer (1.8%) and capital goods (1.2%). The industrial sector in Germany oi still being affected by an extreme shortage of intermediate products. Enterprises still have difficulties completing their orders as supply chains are interrupted because of the war in Ukraine and distortions persist that have been caused by the Covid-19 crisis. 62.% of industrial enterprises surveyed complained from bottlenecks and problems in procuring intermediate products and raw materials in August 2022, according to the Ifo.
Swiss Jobless Rate Declines to 21-Year Low
The Swiss unemployment rate edged down to a non-seasonally adjusted 1.9 percent in September 2022 from 2.0 percent in the prior four months. This was the lowest jobless rate since October 2001. The number of unemployed people declined by 1,846, or 2.0 percent, to 89,526. In the meantime, the youth unemployment rate, measuring job-seekers between 15 and 24 years old, fell to 2.1 percent from August’s 11-month high of 2.2 percent, with the number of young unemployed down by 393, or 4.0 percent, to 9,368. Adjusted for seasonal factors, the unemployment rate inched lower to 2.1 percent in September from 2.2 percent in August.
France Trade Deficit Hits Fresh High
France’s trade deficit widened to €15.3 billion in August of 2022 from an upwardly revised €14.8 billion in July, above market estimates of a €14.83 billion shortfall. It was the largest trade gap since available records began in January of 1997. Imports rose by 4.3% over a month to a new all-time high of €66.5 billion, largely on higher purchases of natural hydrocarbons, electricity, waste (15.3%); transport equipment (7.2%) and mechanical equipment, electrical, electronic and computers (6.1%). Meanwhile, exports advanced by 4.5% to a record high of €51.2 billion, mainly boosted by shipments of natural hydrocarbons, electricity, waste (55.5%) and transport equipment (13%). Within key trading partners, purchases rose mostly from Africa (14.3%) and the EU (4.6%) but fell from the Near and Middle East (-12%). Overseas sales were up primarily to Asia (10.7%), the Near and Middle East (7.2%) and Africa (13.5%).
France Current Account Deficit Narrows in August
France posted a current account deficit of EUR 5.1 billion in August of 2022, narrowing from a EUR 5.3 billion in the previous month. The goods deficit remained barely unchanged at EUR 12.7 billion, the same as in July, whereas the services surplus slightly increased to EUR 5.7 billion from EUR 5.4 billion. At the same time, the primary and secondary income surplus narrowed to EUR 1.9 billion from EUR 2 billion.
Italian Retail Sales Contract in August
Retail sales in Italy fell by 0.4 percent from a month earlier in August of 2022, swinging from a 1.3 percent jump in the prior month. Non-food sales fell by 0.3 percent from the 1.2 percent rise in July, weighed by lower turnover for electric appliances (-4.5 percent) and photographical and musical equipment (-0.3 percent). In the meantime, food sales fell by 0.5 percent, compared to a 1.3 percent increase in the prior month. Year-on-year, retail turnover in Italy was up by 4.3 percent, edging higher from the downwardly revised 4.1 percent increase in the prior month.
Ireland Industrial Output Rebounds in August
Industrial production in Ireland rose by 5.4 percent from a year ago in August of 2022, following an upwardly revised 23.1 percent slump in the previous month. Manufacturing output increased by 8.1 percent, reversing from an upwardly revised 25.5 percent decline in July, mainly due to strong production of wood & wood products, except furniture, paper & paper products and related (56 percent); transport equipment (53 percent) and basic metals & fabricated metal products (52.6 percent). By contrast, output decreased for electrical equipment (-4.8 percent) and textiles, wearing apparel & leather-related products (-4.5 percent). On a monthly basis, industrial output advanced by 16.5 percent, rebounding significantly from an upwardly revised 20.6 percent dip in the previous month.
Norway Industrial Output Growth Strongest in 3 Months
Norway’s industrial production grew 4.7 percent year-on-year in August of 2022, accelerating from a 1.8% growth in the previous month. The figure was the fastest rate in industrial production since May, as production of extraction and related services accelerated (3.3% vs 0.5% in July), amid a rebound in production of electricity, gas and steam (1.2% vs -2.8%). Meanwhile, production of manufacturing, mining and quarrying declined (-0.9% vs 1.5%). On a monthly basis, the industrial production rose 3.1 percent, following an upwardly revised 2.1 percent gain in July.
Brazil Retail Sales Edge Lower in August
Brazil’s retail sales edged down 0.1 percent from a month earlier in August 2022, a fourth consecutive month of declines and compared with market expectations of a 0.2 percent fall. There were decreases in the sales of office supplies, IT and communication (-1.4 percent), other articles for personal and domestic use (-1.2 percent) and pharmaceutical, medical, orthopedic and perfumery articles (-0.3 percent). On the other hand, sales were up for textiles, apparel and footwear (13.0 percent), fuels and lubricants (3.6 percent), books, newspapers, magazines and stationery (2.1 percent), and furniture and household appliances (1.0 percent). The expanded retail trade index, which includes the activities of vehicles, motorcycles, parts and pieces and construction material, was down 0.6 percent, due to a 0.8 percent contraction in the sales of construction material. On a yearly basis, retail sales rebounded 1.6 percent in August, after a 5.3 percent slump in July.
Baltic Exchange Dry Index Fall for 2nd Day
The Baltic Dry index, which measures the cost of shipping goods worldwide, extended losses for the second straight session on Friday, falling about 1.6% to 1,961 points, as the capesize index, which tracks iron ore and coal cargos of 150,000 tonnes, declined 4.4% to 2,396 points. Meanwhile, the panamax index, which tracks about 60,000 to 70,000 tonnes of coal and grains cargoes, added 3 points to rise to 2,235 points; and the supramax index went up by 16 points to 1,706 points. The Baltic Dry index posted a weekly gain of 11.4%.
Mexico Inflation Rate Steady at Highest Since 2000
Consumer prices in Mexico rose 8.7 percent year-on-year in September of 2022, the same as in the previous month, remaining the highest inflation rate since December 2000 and almost in line with market expectations of 8.75 percent. On a monthly basis, consumer prices went up 0.62 percent, below forecasts of 0.67 percent and easing from a 0.7 percent increase in August.
The Week Ahead
It will be a very busy week in the US with earnings season kicking off, FOMC minutes, speeches from several Fed officials, and the inflation rate and retail sales data for September. In the UK, unemployment, industrial production, and GDP figures data will be released and China will publish inflation rate and trade figures. Investors will also be watching India’s inflation rate and the Bank of Korea’s interest rate decision.
In the US the third quarter earnings season kicks-off with JP Morgan Chase, Citigroup, Wells Fargo, Morgan Stanley, PepsiCo and Delta Air Lines due to report. Several key economic indicators, FOMC minutes and speeches from several Fed officials should provide more clarity on the Fed’s rate hike path, after a stronger-than-expected labor report dashed any hopes of a Fed pivot and deepened the turmoil in the stock market.
The September CPI inflation is seen rising 0.2% month-on-month, which will result in the annual rate of inflation slowing to 8.1% from 8.3%. Still, core inflation likely rose 0.5% over the previous month, pushing the annual rate to a six-month high of 6.5% from 6.3%, in another sign that prices remain steep. Retail sales will also be in the spotlight for clues about the behavior of American consumers on the back of tightening financial conditions and persistent price pressures. It will also be interesting to follow the producer price index and the preliminary reading for the University of Michigan consumer sentiment index. Elsewhere in America, inflation figures from Brazil and Chile’s interest rate decision are due.
In the United Kingdom, the economic calendar is packed with key reports on unemployment and monthly GDP, foreign trade, industrial production and construction output. The British economy is expected to have slipped back into contraction in August, with industrial production down for the third month. The jobless rate is expected to hold steady at its lowest since 1974 in the three months to August.
In Europe, September’s final inflation figures are likely to confirm consumer prices rose the most in six months in Germany but fell in both Italy and Spain. Other important data include Eurozone industrial output and foreign trade; Germany wholesale prices; Turkey unemployment rate and industrial production.
In China investors await a series of releases from China after the week-long National Day holiday and ahead of the long-awaited National Congress of the Chinese Communist Party that kicks off on October 16th. The annual inflation for September is expected rise to 2.9 % while the PPI is expected to decline to 1 %. Trade data is set to show that export growth slowed for a third month.
In Japan, new statistical releases include the current account balance and machinery orders for August. In India, new data is set to show that inflation rose further in September and industrial output continued to slow down in August, magnifying recent blows to the economy amid a plunging rupee. In the meantime, the Bank of Korea is expected to increase its base rate by 50bps to 3%, which would take borrowing costs to levels not seen in a decade. South Korea’s unemployment rate is also awaited. Elsewhere, Singapore will unveil Q3 growth figures and Malaysia will divulge labor market data.
In Australia, the focus will be on Westpac Consumer Confidence for October, in addition to NAB Business Confidence and Ai Group Services PMI for September. In New Zealand, Business NZ PMI data for September is awaited.
US Stocks Sell Off after Strong Jobs Report
US stocks traded deeply in the red on Friday, with the Dow Jones falling over 600 points, while the S&P 500 fell more than 3% and the Nasdaq dropped almost 3.8% after fresh labor market figures dashed any hopes of a slower pace of tightening by the Fed. On the corporate front, shares of Advanced Micro Devices slumped nearly 14% after the company reported weaker-than-expected preliminary revenue for Q3. On the week, however, the three major averages are up from lows reached on September 30.
TSX Falls on Tight Labor Market
The S&P/TSX Composite Index fell over 2% below 18,575 on Friday, extending losses from the prior session as investors continued to assess the pace of incoming monetary tightening by major central banks following a batch of fresh economic data. Domestically, the unemployment rate unexpectedly fell by 0.2 percentage points to 5.2%, and the employment change was positive for the first time in three months, raising expectations that the Bank of Canada will not back down from its aggressive hiking momentum. US nonfarm payroll data was also hotter than expected, erasing previous hopes that the Fed could ease the pace of rate hikes that emerged earlier this week. Rate-sensitive sectors led the losses in Toronto, with tech and gold miners trading nearly 5% lower. In the meantime, cannabis producers plummeted, with Canopy Growth and Tilray Inc falling 25% each and partially erasing last session’s surge after US President Biden vowed to review the drug’s treatment by law enforcement.
Brazilian Stocks Lack Direction
Brazil’s Bovespa swung between small gains and losses on Friday, with investors digesting the latest labour data from the US which raised expectations the Federal Reserve will continue tightening in the coming months. Several sectors were down, led by financials and consumer stocks. Banco Bradesco was leading the losses, shedding over 4% following a downgrade by JPMorgan. Conversely, resource-linked shares advanced, boosted by heavyweight miner Vale amid higher iron ore prices. On the domestic front, investors continued to monitor the political situation.
Mexican Stocks Book Losses
Mexico’s S&P/BMV IPC stock index was 1% lower at the 45,800 mark on Friday, partially erasing gains from the previous session as investors digested a batch of macroeconomic data and assessed its effect on monetary policy decisions for major central banks. Domestic inflation was steady at 8.7% in September, remaining at the highest level since December of 2000 and raising the likelihood of further rate hikes by the Bank of Mexico this year. So far, Banxico has already raised borrowing costs by 525 basis points since the April of 2021, failing to contain inflation but succeeding in supporting the peso to be one of the strongest currencies year-to-date. Elsewhere, a strong jobs report in the US erased previous expectations that the Federal Reserve could have a dovish pivot, ramping the dollar and lifting treasury yields. On the corporate front, materials shares fell nearly 1.5% while the heavy-weighing telecom sector dropped 1%. Still, the broader index is set to close the week 2.6% up.
European Equities Fall for 3rd Session
European equity markets dropped for a third consecutive session on Friday, with both the benchmark Stoxx 600 and the German Dax down more than 1% on expectations major central banks will continue aggressive tightening. The US jobs report showed labor market conditions remained tight in September as the unemployment rate fell below forecasts and as the economy added more new jobs than expected with payrolls rising by 263 thousand. The data suggested the US Federal Reserve will continue to raise interest rates at quick pace to combat inflation, despite expected pain in the medium term. Elsewhere, tech stocks were among the worst performers after both Samsung and AMD flagged a downturn in chip demand. On the corporate front, Credit Suisse said on Friday it had made an offer to repurchase up to CHF 3 billion of senior debt securities, aiming to soothe investors’ concerns ahead of its strategic review later this month. For the week, the Stoxx 600 advanced almost 1% and the DAX gained 1.5%.
UK Stocks Flat on Friday, Up 1.5% on the Week
The FTSE 100 closed little changed on Friday, as gains in heavyweight energy shares offset overall negative sentiment. The benchmark Brent crude topped $97 per barrel, the highest in five weeks and was heading for its biggest weekly gain since early March on OPEC’s production cuts. UK house prices dropped for a third straight month in September, as rising borrowing costs are likely to exert “more significant downward pressure” soon, according to the report. The second-quarter labor productivity in the United Kingdom was revised higher. The FTSE 100 advanced 1.5% on the week, its biggest weekly percentage gain since late July.
French Stocks Fall for 3rd Day
The CAC 40 Index fell about 1.2% to close at 5,867 on Friday, extending losses for the third straight session, amid the prospect of further monetary policy tightening in the coming months. The latest US jobs report showed the economy added a larger-than-expected 263,000 jobs last month and the unemployment rate unexpectedly fell to 3.5%. Traders also continued to digest minutes from the ECB’s latest policy meeting, which indicated the central bank will continue to raise rates. Tech stocks were the biggest losers, led by Dassault Systemes (-6.5%), STMicroelectronics (-5.3%) and Capgemini (-4.1%), after results from both Samsung and AMD signaled a strong dip in chip demand. On a brighter note, Renault surged almost 5% after ODDO BHF upgraded the French carmaker’s stock. Still, the CAC 40 ended the week 1.8% higher.
Madrid Stocks End at 1-Week Low
The IBEX 35 stock index fell about 1% to close at a one-week low of 7,437 on Friday, extending losses for the third straight session, in line with its regional peers. The hawkish tone in the latest ECB September minutes suggested interest rate hikes will continue in the coming months. On the corporate front, Fluidra was the top loser, down 6.2%, followed by Solaria (-4.7%), Sacyr (-4.5%) and Rovi (-4%). On the contrary, Banco de Sabadell outperformed, gaining 2.1%. Still, the IBEX 35 added roughly 1% on the week, mainly helped by banks.
Italian Shares Decline for 3rd Session
The FTSE MIB index closed 1.1% lower at 20,900 on Friday, extending sharp declines for a third session as hot payroll data from the US erased previous bets that the Federal Reserve could ease the pace of its incoming rate hikes. Minutes from the ECB’s latest meeting released yesterday also added to the hawkish momentum for central banks, consistent with previous remarks from the central bank’s board that interest rates will continue to rise rapidly as inflation is becoming entrenched. Tech shares led the losses in Milan, falling nearly 5% on average and halting a five-session win streak for the sector with STMicroelectronics tracking other chip manufacturers and tanking 5.3%.The FTSE MIB added 1% on the week, mostly supported by gains from banks.
Japanese Shares Drop as Hawkish Fed Weighs
The Nikkei 225 Index dropped 0.71% to close at 27,116 while the broader Topix Index tumbled 0.82% to 1,907 on Friday, breaking a four-day advance, as US Federal Reserve officials signaled determination in bringing down inflation with more rate hikes that markets fear could tip the economy into recession. Investors also braced for the monthly US jobs report that could offer new clues on the likely path for US monetary tightening. Technology stocks led the market lower, with sharp losses from Tokyo Electron (-0.8%), Recruit Holdings (-2.1%), Murata Manufacturing (-1.5%), Advantest (-1.1%) and M3 Inc (-1.4%). Nearly all other sectors declined, with notable losses from index heavyweights such as Mitsubishi UFJ (-2.3%), Toyota Motor (-0.7%) and Nippon Yusen(-2.6%). Still, the benchmark indexes finished the week about 4% higher, snapping a three-week decline. The Nikkei 225 will be closed on Monday for the Sports Day holiday.
Hong Kong Shares Jump 2.75% Weekly
The Hang Seng China Index plunged to finish at 17,740.05 on 6074 extending losses from the prior session after their strong rebound on Tuesday, tracking US stocks that ended in the red for the second straight day, as Fed officials showed no intention of backing down from the most rapid rate hike in decades. China’s forex reserves fell to their lowest in 5-1/2 years in September, amid strong US dollar. Sharp losses were pronounced for JD.Com (-3.4%), China Overseas Land (-2.6%), Tencent Holdings (-2.2%), and Meituan (-1.8%). Still, the index gained 2.75 % for the week, on growing expectations that the XCOP Congress will yield growth and market friendly measures. There were also reports that spending on local tourism rose during China’s Golden Week even as clusters of lockdowns continue across the mainland.
Indian Stocks Close Lower on Friday
The BSE Sensex cut early losses to close 30 points lower at 58,190 on Friday, but failed to extend the two prior sessions of gains as investors refrained from placing large bets ahead of September’s US payroll data release after the closing bell. Sentiment was also hampered after the World Bank cut India’s growth forecast for the current financial year by a full percentage point to 6.5%, one week after the RBI lowered its projection to 7%. On the corporate front, losses were broad among the tech, financial, and auto sectors, with Mahindra & Mahindra, State Bank of India, and Hero Moto all dropping more than 1%. On the other hand, energy producers and power-grid operators limited the index’s losses, tracking the extended rally for oil prices. Also, jewelry producer Titan Company soared over 5% after reporting an 18% yearly jump in second quarter sales. On the week, the index closed 1% higher.
US Treasury Yields Rise after Jobs Report
The US 10-year Treasury note yield rose further toward 3.9%, approaching a 14-year peak of 4% hit on September 27th, after the hotter-than-expected employment report reinforced market bets the Federal Reserve will maintain its aggressive tightening path to tame inflation. Cleveland Fed Bank President Loretta Mester said the Fed has to be “singularly focused on inflation,” echoing remarks from other central bank officials who sounded unequivocally committed to bringing down inflation with more rate hikes, even at the cost of higher unemployment and weaker growth. Investors now look ahead to next week’s inflation report for more clues on the central bank’s rate hike path.
Canada 10-Year Bond Yield climb to 15-Week High
Canada’s 10-year government bond yield rose toward 3.4%, the highest in nearly 15 weeks, on expectations major central banks would continue aggressive tightening to curb inflation. The latest data showed the Canadian economy added 21.1K jobs in September, above expectations and pushing the unemployment rate closer to July’s 4.9% record low. The US jobs report also beat expectations. The Bank of Canada raised its benchmark rate by 75 bps in September, extending its aggressive tightening path as it fights inflation. Also, BoC governor Tiff Macklem stated that inflation in Canada is “too high” and that the BoC needs to raise rates to allow the economy time to catch up.
German 10-Year Bund Yield Rises to 11-Year High
Germany’s 10-year government bond yield extended gains towards 2.2% on Friday, moving closer to an 11-year high of 2.352% hit at the end of September, after a stronger-than-expected US jobs report pointed to a tight labor market, which, in turn, supports the continued aggressive monetary policy tightening campaign by the Federal Reserve. The European Central Bank’s monetary policy meeting accounts suggested this week that policymakers will continue to raise interest rates to combat inflation even as the region faces an economic downturn. In September, the central bank lifted interest rates by an unprecedented 75 bps and signaled further rate hikes in the coming meetings. Money markets are almost fully pricing in another 75 bps interest rate hike at the October meeting with around 125 basis points of tightening by year-end
UK 10-Year Yields Rises back
The yield on Britain’s 10-year Gilt rose to 4.23%, moving closer to a 14-year high of 4.5% reached last week, following a surge in US bond yield, after the strong US labor report reinforced the view that Fed would need to continue to tighten aggressively. Adding to woes investors remain concerned about the sustainability of the UK’s debt levels after the current government led by Liss Truss is insisting cutting taxes is the best way to boost the UK economy. Rating agency Fitch cut the outlook on the UK’s credit rating to negative, following a similar move by S&P last week.
Swiss 10-Year Bond Yield Approaches 11-Year High
The yield on the Swiss 10-year government bond rose to 1.4%, tracking the rebound in global bond yields and approaching the 11-year high of 1.5% touched on September 27th as major central banks signaled their intent to continue raising interest rates despite the worsening macroeconomic backdrop. Domestically, the unemployment rate fell to a 21-year low of 1.9% in September, adding room for further rate hikes for the Swiss National Bank. While the latest data pointed to slower inflation in Switzerland, slowing to 3.3% in September from the 29-year peak of 3.5% in the prior month, it marked the eighth consecutive period in which price growth remained well above the central bank’s upper target of 2%. In its last meeting, the SNB hiked its key rate by 75bps to 0.5% in September, lifting interest rates out of the negative territory for the first time since 2011.
Italian Bond Yields at 10-Year High
The yield on the Italian 10-year BTP rose to the 4.7% mark on Friday, hovering around the near 10-year peak hit in the end of September and tracking the rebound for global bond yields as investors continued to weigh on expectations of aggressive policy tightening from major central banks. Minutes from the ECB’s last meeting showed that board members are increasingly worried that inflation may become entrenched, signaling that the bloc’s interest rates should continue to rise at a fast pace. September data pointed to a 10% annual price growth in the Eurozone, a fresh record, while domestic inflation jumped to a 37-year high of 8.9%. Ahead of higher borrowing costs, the spread between the 10-year BTP and Bund widened to 240bps, pointing to an increase perceived risk of holding Italian credit. Investors also eagerly await for the Italian Finance Ministry’s new estimates of debt and budget deficit for the next three years for insights on the country’s spending needs.
French Bond Yields Rise Sharply
The yield on the French 10-year OAT rose sharply to the 2.8% level, hovering at the 10-year high touched in September 27 and tracking the increased selling of government debt worldwide as investors continue to calibrate expectations on how aggressive central banks will tighten monetary policy. Minutes from the ECB’s latest policy-setting meeting reflected board-members’ worries that inflation is becoming entrenched, further confirming policymakers’ intent of raising rates rapidly. Inflation in the currency bloc rose to a record-setting 10% in September, according to preliminary estimates, even though domestic figures slowed further. Meantime, French Economy Minister Le Maire said that increased spending by the government will not affect the target of a 5% budget deficit this year. Elsewhere, hawkish remarks from Fed members retracted recent expectations that the US central bank could ease the pace of incoming rate hikes to accommodate for growth concerns.
DXY Jumps after US Job reports
The dollar index jumped to 112.5 on Friday, after the NFP print came in above expectations reinforcing bets the Fed will continue hiking rates aggressively to tame inflation. The US economy added a robust 263K jobs in September, above market expectations of 250K. Also, Cleveland Fed Bank President Loretta Mester said the Fed has to be “singularly focused on inflation,” echoing remarks from other central bank officials who sounded unequivocally committed to bringing down inflation with more rate hikes, even at the cost of higher unemployment and weaker growth. Investors now look ahead to next week’s inflation report for more clues on the central bank’s rate hike path.
Yen Depreciates Above 145 after Payroll Data
The Japanese yen traded around 145 per dollar on Friday, close to a 24-year low of 145.9 hit last month despite efforts by the Japanese government to stem its slide. Japanese Prime Minister Fumio Kishida warned investors against betting on a weaker yen, saying sharp, one-sided yen declines are “undesirable” and that the currency intervention conducted last month reflected the government’s view that it cannot turn a blind eye to “repeated, excessive volatility” driven by market speculation. The latest payroll data shows wages rising and household spending increasing, which is likely to accelerate inflation. Japan’s currency has depreciated steadily throughout the year on widening policy divergence, as the Bank of Japan committed to ultra-easy policies while the US Federal Reserve aggressively raised interest rates.
WTI Crude Set for Best Week since March
WTI crude futures soared more than 4.5% to nearly 5-week highs above $92.5 per barrel on Friday, to gain more than 16% this week, the most since early March as OPEC+ agreed to cut production by 2 million barrels per day or about 2% of global supply from November, in a move that threatens to squeeze supply further ahead of the winter season. That isthe biggest output cut since the start of the pandemic, though Saudi Arabia’s oil minister said the actual cut will likely be around 1 to 1.1 million barrels as some members are already pumping below targets. US President Joe Biden showed dismay over OPEC+’s decision on Thursday and said the US was looking for ways to keep prices from rising. Adding to supply concerns, Russia warned again this week that it won’t sell oil to countries that support the US-led plan to impose a price cap on Russian oil.
Nat Gas Falls as Hawkish Sentiment Returns
US natural gas futures fell to below $6.8/MMBtu back towards its 3-month low of $6.3/MMBtu as continued Fed hawkishness is expected. The EIA reported on the largest-every increases in domestic inventories last week, with US utilities adding 129 billion cubic feet (bcf) of gas to storage, above market expectations of a 113 bcf build due to mild weather and an increase in wind power. Also, keeping a lid on prices were record levels of domestic output and a recent cut in gas demand from hurricane-induced power outages. Average gas output in the US Lower 48 states rose to 100.1 bcfd so far in October from a record 99.4 bcfd in September, according to data provider Refinitiv.
Copper Declines as Hawkish Fed Weighs
Copper futures fell below $3.45 per pound on Friday, giving back most of the gains from earlier this week, weighed down by a resurgent dollar as a chorus of US Federal Reserve officials indicated strong commitment to bring down inflation with more rate hikes, even at the cost of higher unemployment and weaker growth. Investors also turned cautious ahead of US jobs data that could influence the US central bank’s monetary decision in November. Meanwhile, copper scaled over three-week highs on Thursday after the London Metal Exchange imposed an immediate ban on new deliveries of the metal from Russian firm Ural Mining & Metallurgical Co. Robust physical demand for copper from top consumer China on the back of government stimulus also supported prices. Still, the metal remains down more than 30% since March as major central banks carried out an aggressive tightening campaign to combat surging inflation that sparked global recession fears and stemmed overall demand.
Gold Retreats After NFP
Gold prices fell to $1,694 an ounce on Friday, extending losses for a third session as investors digested better than expected labor market data adding room for the Federal Reserve to maintain the aggressive hiking momentum that it pledged. The metal has been whipsawed throughout the week by shifting views on US monetary policy, with weak US PMI data initially driving bullion higher on expectations that the Fed could ease its tightening pace, before facing pressure toward the end of the week as hawkish remarks from US policymakers retracted pivot hopes. Despite the late-week retreat, gold prices are set to end the week 2% higher.
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