- A tip for you at the start of the week: The disappointing US CPI saw broad equity markets close in the red last week, with growth stocks being hammered the hardest amid stubborn inflation and central banks’ determination to aggressively hike rates. A 75 basis point rate hike by the Fed is almost fully priced in, while a full percentage could also be on the cards. But will there be an opportunity to “sell the rumor, buy the news” this week?
- Market performance: High multiples socks are being hit the hardest in such an economic and political cycle, with the tech-heavy Nasdaq index falling 5.5% on the week, deepening a bear market of a 27% loss year-to-date.
Performance of the world’s major indices as of September 18, 2022
- A highlight of the week: Four major central banks including the Fed, BOE, BOJ and SNB will decide their interest rates this week. With the exception of the BOJ, all three banks are expected to hike interest rates by at least 50 basis points, which is sure to worry financial markets. However, less hawkish rhetoric from the Fed chair will also spark a recovery rally, although it has little chance.
What are we observing?
- US bond yield inversion deepening: The spread on US 2- and 10-year yields continues to widen, deepening yield inversion and pointing to an inevitable economic recession for the foreseeable future. See bond market movements
- US dollar awaits clues: The dollar index rose for the week, hovering around a 20-year high, with EUR/USD falling back to parity levels from the week’s high of over 1.19 as traders await more clues on the Fed’s rate hike path this week . Check the US Dollar Index
- Yuan falls: The Chinese yuan plummeted above 7 against the USD, a key psychological level, the lowest in July 2020. This week, the PBOC’s decision on its policy lending rate decision will be closely watched. Another rate cut could push the currency lower. Trade USD/CNH now
- Commodities fall: Both energy and metals remained under pressure due to a strong US dollar and economic concerns. Crude oil and natural gas fell to monthly lows. Gold bottomed out in April 2020. See Crude Oil Prices
- Bitcoin outperforms Ethereum: The major protocol merger of the well-known Ethereum was completed, but did not bring any further upswing of the second largest token. Instead, Bitcoin is showing more resilient moves versus Ether this week, suggesting that crypto investors were seeking safety in risk aversion. Trade bitcoin now
Economic calendar (19 September – September 23)
