- A hint for you to start the week: The disappointing US CPI sent broad equity markets to close in a sea of red last week, with growth stocks being hammered down the hardest amid sticky inflation and central banks’ determination of aggressive rate hikes. A 75-bps rate hike by the Fed is almost fully priced in, while a full percentage might be also on the cards. But will there be a “sell the rumour, buy the news” opportunity for this week?
- Markets performance: High multiple stocks are being hit the most in such an economic and policy cycle, with the tech-heavy index, Nasdaq, dropping 5.5% for the week, deepening the bear market with a 27% loss year to date, as slow growth in the economy and rising rates are causing valuation downgrades in those stocks with high P/E ratios.
World major indices performances as of 18, September 2022Click to enlarge the table
- A highlight for the week: Four major central banks, including Fed, BOE, BOJ, and SNB, are to decide on their policy rates this week. Except for BOJ, the rest of the three banks are all expected to raise interest rates by at least 50 basis points, which will certainly send jitters to the financial markets. However, less hawkish rhetoric by the Fed chair will also spark a relief rally, though it has little chance.
What are we watching?
- US bond yield inversion deepens: The spread on the US 2-year and 10-year bond yields widens further, deepening the yield inversion, and flagging an inevitable economic recession in the foreseeable future. See bond markets movements
- US dollar waits for clues: The dollar index rose for the week, hovering around a 20-year high, with EUR/USD pulling back to the parity level from the week’s high of above 1.19, as traders are waiting for more clues for the Fed’s rate hike path this week. Check on the US dollar index
- Yuan tumbles: The Chinese Yuan tumbled against the USD, leading USD/CNH to above 7, a key psychological level, the lowest seen in July 2020. This week, the PBOC's decision on its loan prime rates will be on close watch. A further rate cut may take the currency lower. Trade USD/CNH now
- Commodities fall: Both energy and metals continued to be under pressure due to a strong US dollar and economic concerns. Crude oil and natural gas fell toward the month’s lows. Gold hit the lowest level seen in April 2020. See the crude oil pricing
- Bitcoin outperforms Ethereum: The well-known Ethereum’s major protocol upgrade has been completed but it did not bring further rebound of the second-largest token. Instead, Bitcoin showed more resilient moves against Ether last week, suggesting that crypto investors sought safety on the risk-off sentiment. Trade Bitcoin now