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– Services and manufacturing data disappoints causing recessionary fears to mount, the blue-chip focused Dow Jones Index (DJIA) lost almost 500 points on Friday, while the S&P 500 and Nasdaq were down 1% and 0.6%, respectively.
– A more Hawkish policy from the Federal Reserve looks likely, with a 2023 year end target of 5.1% (see Fed Plot below), that assumes three more interest rate hikes of 25 basis points through the year. This is more aggressive rate than what markets were expecting going into the FOMC meeting.
– The yield on the US 10-year Treasury note bounced back above 3.5%. The rising 10 year yield means that banks have to push higher interest rates from everyone that they lend to which causes mortgage rates to rise. In turn this adds pressure to the housing markets.
– The European Central Bank raised rates by 50 basis points (bps), the headline statement however was that rates need to rise “significantly and steadily” in order to return to a timely return of inflation.
– Equities in London dropped for a third consecutive session on Friday, with the FTSE 100 finishing around the 7,330 mark. The UK’s index was dragged down by a struggling real estate sector and utility stocks.
– The Bank of England (BOE) on Thursday raised interest rates by 50 bps to 3.5%. A level last seen back in 2008 which marked the end of the financial crisis. BOE caution further hikes may be required despite inflation cooling to 10.7%.
– GBP.USD fell sharply last week despite currently trading at 1.21762 (See Chart Below). The recent BOE rake hike pushed Sterling (GBP) lower before finding support just above the 200 day moving average. Next resistance level will be seen at 1.22.
– Russia launched over 60 missiles at Ukraine in its first large scale attack since 5th December 2022. The attack primarily focused on Ukraines infrastructure in a bid to force civilians into hardship through winter. U.S. President reaffirms he will stand by Ukraine for “as long as it takes’.
– Russia’s Central bank on Friday held its key interest rate at 7.5% for a second consecutive meeting, but noted that inflationary risks are rising. The Bank of Russia has cut rates six times so far this year following a September reduction of 50 basis points, down from 8% prior.
– Retail sales in China fell by 5.9% in November year on year, worse than trade estimates for a decline of 3.7%. Industrial production grew by 2.2% in November from a year ago, missing Reuters’ forecast of a 3.6% increase.
– In the last two weeks, reports of citizens falling ill with Covid-19 in China have surged. Beijing claimed fever clinics saw a total of 22,000 visits — up 16x from a week ago. The reality of easing restrictions kicks in and questions around the return of China remain.
– Surprisingly, the Bank of Japan (BOJ) has decided to keep its ultra low rates (-0.10%). The Japanese yen has been the worst-performing G10 currency this year, with a 15% loss against the dollar, driven mainly by the gap between rising U.S. rates and anchored Japanese rates.
The chances of a “santa rally” appear to have diminished with the S&P 500 appearing to make a top at 4,100. From a technical and fundamental perspective things do not look too promising as the Fed continues to tighten its monetary policy adding further pressure to equity markets. Cracks in China’s fast reopening start to appear as COVID cases rise and the country grapples with the rapid spread. Global recessions continue to haunt the markets with no firm confidence being restored.
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