Market Insights Week 51
Date – 19th Dec’22
The US Federal Reserve’s mid-week hike rate increased by 50 basis points and then followed by similar steps from European Central Bank, the bank of England and Swiss National Bank had a greater impact on the market last week and the major US stock indices declined around 2%, falling for a second consecutive week and to levels seen in early November’22.
Recession, strict monetary measures and inflation have ratcheted investor worries higher and continue to weigh on the markets.
Let us highlight some of the major movements of the last week:
- The US Fed Reserve slowed its pace of rate increase and announced 50 bps increase instead of the usual 75 basis points (increased after the last four meetings).
- ‘Easing in Inflation’ showed as prices rose at 7.1% annual rate in November as published by CPI (Consumer Price Index). It is the smallest YoY (year-over-year) increase since December’21.
- The S&P 500 index and DJIA lost 82.02 (around 2.1%) and 556 points (almost 1.7%) last week to close at 3,852.36 and 32,920.46 respectively.
- Nasdaq and MSCI EAFE also shed 2.7% and 0.9% respectively whereas oil gained 4.6% to close at USD 74.28/bbl.
- The 10-year Treasury yield lost 0.1% to close the week at 3.49% whereas Government bonds gained 0.6%. It’s imperative to note that bond prices and yields move in opposite directions.
- In the wake of Hawkish commentary by European central bank officials and ECB’s hike in the key interest rate by 50 basis-points, shares in Europe also fell sharply.
- The Bank of England (BoE) also increased its key interest rate by 0.5 percentage point to reach a 14-year high of 3.5% with the ninth consecutive hike.
- The pan-European STOXX Europe 600 Index ended the week lower by 3.28% and Germany’s DAX Index shed 3.32%.
- Italy’s FTSE MIB and France’s CAC 40 Index also lost 2.43% and 3.37% respectively whereas the UK’s FTSE 100 Index gave up 1.93% last week.
- The US Fed’s tightening of monetary policy and its outlook also impacted Japan’s stock markets, which fell over the week.
- The Nikkei 225 index gave up 1.34% and the broader TOPIX index declined 0.58%. However, the yield on the 10-year Japanese Government bond (JGB) remained unchanged at 0.25%.
- With dampened investors sentiment by the weaker-than-expected economic data, the Shanghai Composite index shed 1.22% and the blue-chip CSI 300 index declined 1.1%, reversing several weeks of gains.
A report scheduled to be released on Friday will be closely watched for any signs that U.S. inflation continued to moderate in November. The government will update its Personal Consumption Expenditures Price Index, the Fed’s preferred gauge for tracking inflation. The most recent report showed that PCE inflation excluding food and energy prices rose 5.0% in October from a year earlier, down from 5.2% the previous month.
Request the Market Insights Newsletter, in your e-mail, every week: