Weekly Market Report: September 9, 2022
In a holiday shortened week, markets digested a large dose of FOMC speaking engagements, a very light economic calendar, and requisite geopolitical interference. The result was a pronounced rally across U.S. and developed non-U.S. equity markets with emerging markets ending flat to slightly down on the week. Interest rates continued their march higher with the yield curve moving up in parallel fashion leaving the 10yr UST at its highest level since the June 2022 bout of market volatility. The USD fell slightly on the risk rally and the commodity complex finished in the red with oil trading sideways but natural gas falling 9% on the week.
- From an equity market technical perspective, it feels like the bears are in check until the June lows are taken out while the bulls are in check until the mid-August highs are taken out.
- It was a busy Fed speaking circuit last week with markets (perhaps foolishly) hoping for a second consecutive slowdown in CPI data taking the Fed hawkish narrative back a bit. The labor market and wage inflation may well just take the wheel for the hawkish narrative.
- Falling inflation data points are growing including Baltic Dry Index, Logistics Manager Index, WCI Shipping Rates, Warehousing/Transportation Pricing, ISM and regional Fed Delivery Times/Prices Paid/Prices Received, commodity prices, gas prices, vehicle prices, and rental prices.
- Fed whisperer Nick Timiraos published a WSJ article highlighting little pushback from FOMC members regarding expectations for a 75bps hike at the September FOMC meeting. Four minutes later, market probabilities for 75bps increased from 72% to 92%.
- Both the ECB and BoC announced 75bps hikes to their policy rates, larger than the 50bps consensus. The European rate now stands at 1.25%.
- Bond market carnage continued last week now with the Barclays Aggregate Index 1yr, 2yr, 3yr, and 5yr total returns all at the worst levels on record.
- The consensus case against imminent U.S. recession beyond pent up consumer demand (liquidity) and a robust job market is pent up capex where capital goods orders are near 1998 levels and the average age of fixed assets are at their ‘oldest’ since 1964.
- Lithium refineries, battery manufacturing plants, solar/wind power installs, and power grid investment are beginning in earnest in what is expected to total $1.2t in investment by 2035, spurred in part by the recently passed climate/infrastructure bill.
- Reuters reported this week that the U.S. Strategic Petroleum Reserve has fallen to its lowest level (442.5mb) since November 1984.
- The EU foreign policy chief and U.S. officials signaled a new Iran nuclear deal is not expected to happen anytime soon.
- An eventful (and somber) week in the UK saw the passing of Queen Elizabeth and the appointment of Liz Truss as the next Prime Minister.
Economic Release Highlights
- August ISM Services Index came in at 56.9 versus consensus forecast of 55.4, toward the higher end of consensus range of 53.5 to 57.0.
- Weekly initial jobless claims fell slightly WoW to 222k.