US Stock Weekly Update 15 - 19 Aug 2022

U.S. stocks retreated as a whole last week. The S&P lost 1.2% for the week, the Nasdaq fell 2.6% and the Dow fell 0.2%. The yield on the 10-year U.S. Treasury bond rose 14 basis points to close at 2.97%, which was -26 basis points compared with the yield difference between the two-year Treasury bond, and the inversion rate narrowed. The VIX, the fear index, closed up 5.5%. Crude oil prices retreated, with WTI ending the week down 2.4%. The dollar index was up 2.3% at 108.11.

The outlook for Germany, Europe's largest economy, is bleak due to the Russian-Ukrainian conflict, the coronavirus pandemic and supply disruptions. Data on Friday showed that Germany's PPI surged 37.2% year-on-year in July, far exceeding expectations of 31.8%, compared with 32.7% in June; it rose 5.3% month-on-month, 0.7% expected, and 0.6% in June. The analysis pointed out that Germany's PPI surged again than expected in July, mainly driven by energy prices. Compared to July 2021, the price of energy in Germany as a whole has risen by 105%, mainly due to higher gas and electricity prices.

Minutes from the Fed's July meeting contained little surprises. The market has a strong consensus on the path of this tightening and the final interest rate, and the fluctuation of the dot plot in the past two months is very small. The Fed will do everything it can to bring inflation back to its 2 percent target, even if it leads to a recession, Fed voter Barkin said in a speech on Friday. Treasury yields are expected to rise as the Fed's balance sheet shrinks.

This speech corresponds to the treasury bond market, which shows that the inversion of the 10-year and 2-year treasury bond yields has narrowed considerably, to -27 basis points, that is, the market has responded to the Fed's accelerated shrinking of its balance sheet to about $90 billion per month in September. reaction. In addition, the dot plot shows that the probability of the Fed raising interest rates by 50 basis points in September has increased, while the probability of raising interest rates by 75 basis points has decreased, which further caused the 10-year Treasury yield to rise faster than 2 years.

At present, the S&P has risen about 15% since the bottom in mid-June, of which the valuation contributed 16% and the profit contributed -1%. The current rolling price-to-earnings ratio is 17.9 times, which is higher than the average of 16.2 times since 1990. Since mid-June, the market has cut 2022 and 2023 earnings by 5% and 0.2%, respectively, reducing EPS growth from 10.6% and 9.7% to 5.6% and 9.5%, respectively.

Economic Releases For The Week (22/8/2022-26/8/2022):

23/8/2022
US - United States' New Home Sales, 10.00PM

24/8/2022
US - United States' Pending Home Sales, 10.00PM

25/8/2022
US - United States' 2Q22 GDP Growth Rate (2nd Est), 8.30PM

26/8/2022
MY - Malaysia's Inflation Rate, 12.00PM
US - United States' Michigan Consumer Sentiment, 10.00PM

Sources from: Investing.com; Reuters.com, Bloomberg

Louis Yap

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