Weekly Update 12 - 16 Sep 2022

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U.S. stocks fell overall last week. The S&P fell 4.7% for the week, the Nasdaq fell 5.5% and the Dow fell 4.1%. The yield on the 10-year U.S. Treasury bond continued to rise by 14 basis points and closed at 3.455%, with a spread of -42 basis points from the yield on the two-year Treasury bond, and the inversion was further deepened. Yields rose even more. The VIX, the fear index, surged 15.4% this week. Oil futures resumed their losses, with WTI down 1.27% for the week and closing at 84.99 on Friday. Spot gold resumed its decline, down 2.43% this week. The dollar index closed the week up 0.63% at 109.65.

The US CPI recorded 8.3% in August, higher than the expected 8.1%, and the core CPI of 6.3% was also higher than the expected 6.1%. Service-oriented inflation, rent, medical care, etc. remained stubborn. After the data was released, the interest rate in the dot plot changed, and the expected endpoint interest rates in 22 and 23 rose to 4.25% and 4%, respectively. The market is focused on the Fed meeting on Thursday, and Powell may give guidance on raising interest rates by 75 basis points in November.

The University of Michigan's consumer confidence index in the United States recorded 59.5 in September, slightly lower than the expected 60, and the previous value of 58.2. Commentary from the director of the University of Michigan Consumer Survey: Consumer confidence was basically flat in September, just 1.3 higher than in August. The one-year economic outlook continued to rise from the very low levels seen in the early summer, but those gains were largely offset by a modest decline in the longer-term outlook. After a marked improvement in confidence in August, consumers showed signs of uncertainty about the economic trajectory.

The one-year inflation rate in the United States is expected to record 4.6% in September, down from the previous value of 4.80%. The agency believes that because of the risk of global recession and the "long and variable" lag of monetary policy, the Fed will "play cautiously" next week and only raise interest rates by 75 basis points instead of 100 basis points. Another focus, though, is how long the Fed plans to keep rates high. Multiple economic data released since the Fed's last meeting suggest that high inflation will be a long-term phenomenon.

In addition, some institutions pointed out that although this century, the Federal Reserve has put inflation first in the previous tightening cycles and has kept borrowing costs low for a longer period of time. But in earlier cycles of rate hikes, the Fed cut rates several times before unemployment peaked. It is also worth noting that the policy rate ended up either at the same level as at the start of the cycle or much lower than it was and remained there long after the unemployment rate retreated. This is a good example of where the Fed's dual mandate should come into play. When inflation is out of control, policymakers pull the tightening lever, and the resulting rise in unemployment is a necessary condition for the Fed to subsequently pull the easing lever. So it's only a matter of when, not if, investors who are bracing for an eventual rate cut will see a return.

Economic Releases For The Week (19/9/2022-23/9/2022):

20/09/2022

JP - Japan's Inflation Rate, 7.30AM

21/09/2022

US - United States' Existing Home Sales, 10.00PM

22/09/2022

US - United States' Federal Reserve Interest Rate Decision, 2.00AM

JP - Japan's Bank of Japan's Interest Rate Decision, 11.00AM

UK - United Kingdom's Bank of England's Interest Rate Decision, 7.00PM

Sources from: Investing.com; Reuters.com

Louis Yap

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