Weekly Market Report: November 11, 2022
Risk markets certainly appreciated economic data and policy developments last week, translating them to large moves across the global capital markets, currencies, and commodities. Emerging signs of cooling inflation pressures, a shift away from zero Covid policies in China, and a gridlock outcome in the midterms likely all contributed to the move. Equity markets rallied sharply higher, including a rare +5% single day in the
S&P 500. We saw a very rare -2% move in the USD, a strong rally across industrial metals, and a collapse in bond yields.
- Last week’s soft CPI report alongside upgraded economic growth forecasts (Atlanta Fed GDPNow moving from 3.6% to 4.0%) resulted in a remarkable rally in both equity and bond markets. Whether this is a welcomed bear market rally or a change in trend remains to be seen.
- Despite massive moves higher across equity markets, it should be noted that the technical downtrend remains firmly in place. Growth oriented stocks with higher debt loads, small to no dividends, no earnings, and higher valuations enjoyed the best performance last week.
- The USD decline of nearly 4% over two days last week brings its decline since the late September peak to -6.8%.
- The balance of ten FOMC speaking engagements last week cautiously backed up market pricing of a ‘step down’ concept with regard to future Fed policy while U.S. economic growth seems to be holding up.
- Adding to indications of labor market/wage softening was Facebook’s announcement last week of significant layoffs casting a shadow across technology related names.
- The UK housing market is showing signs of stress with mortgage rates buying activity and prices falling.
- Central bank gold purchases in the third quarter were the largest on record per the World Gold Council, one of the only shiny objects in the gold patch we have seen this year.
- Two of the most prominent crypto exchanges, FTX and Binance, gave investors heartburn early in the week as speculation about their solvency emerged with the former filing for bankruptcy.
- China announced the easing of some of their Covid measures by reducing required quarantine times and ending ‘second contact’ policies.
- U.S. midterm elections (likely?) produced the expected result with a gridlock Congressional outcome moderating both Democrat and Republican agendas, a net positive for the markets.
Economic Release Highlights
• The October jobs report revealed 261,000 new jobs, well above the consensus forecast of 210,000 but lower
than the prior month. The unemployment rate moved up one tick to 3.7%.
• Average hourly earnings increased MoM (0.4%a vs 0.3%e) and YoY (4.7%a vs 4.7%e).