Last week, Fed’s vows to keep rates “higher for longer” spooked markets as an economic recession looks closer than at any other time. A surge in bond yields sank global equity markets, typically in growth stocks, with the US small cap, Russell 2000, down 6.6%, followed by the tech-heavy index, Nasdaq, down 5%.
World major indices performances as of 24, September 2022Click to enlarge the table
The US PCE data will be in focus this week, which will provide further clues to the inflation trajectory, though it may have little impact on Fed’s decision at this stage. Plus, the UK may have another negative GDP growth in the second quarter, which could confirm a so-called technical recession in the country following the US.
What are we watching?
- The bond market rout: Bond rout is something that could cause more pain in the equities. The US 10-year bond yield spiked to a fresh 12-year high, and the yield on the 2-year note surged to the highest level seen in August 2007. See Treasuries's movements
- VIX spikes: The fear gauge, the CBOE Volatility Index topped a key level of 30 on Friday, suggesting investors’ concerns about economic growth are heightened dramatically due to central banks’ accelerating rate hikes. Check on VIX's price
- US dollar index tops 113: The dollar index surged to 113.02, the highest level seen in May 2002, smashing the other currencies deep, with the Chinese Yuan devaluating to 7.13 per dollar, the lowest seen in June 2020, while EUR/USD tumbled to 0.9685 last Friday, a fresh 20-year low. Trade currencies now
- Crude oil under 80: The WTI futures plunged to $79.87 per barrel, the lowest seen in January, amid a strong US dollar and broad recession fears. However, the escalation of the war may intensify the supply issues, making oil prices remain supported at some point. See crude oil's movements
- Accumulating trades in crypto: Cryptocurrencies surprisingly showed resilient moves, despite a sharp selloff in risk assets. This may suggest that traders are accumulating cheap coins to seek a bargain, with Bitcoin consolidating above the recent low of just above 18,000. Check on cryptocurrencies