Oct 10, 2022
VOT Research Desk

Key News – Insights and Analysis

The Market Perspective:

After three major US benchmark indices finished the week sharply lower as a surprise drop in U.S. unemployment suppressed any thought of a pivot on policy tightening, December S&P 500 futures (ESZ22) are trending down -0.61% this morning. Losses in the Technology, Consumer Services, and Consumer Goods sectors weighed heavily on three major U.S. stock indexes.

The jobless rate dropped to 3.5 percent which was lower than anticipated at 3.7%, according to data from the Labor Department. Nonfarm payrolls increased by 263,000 jobs at the same time, exceeding expectations of 250,000.Investors’ hopes of a Fed shift were dashed by job gains, a lower unemployment rate, and continued healthy wage growth.

As the labor market remains far too hot for the Fed’s comfort zone, the data confirmed another jumbo 75 basis point rate hike in November. In the meantime, U.S. rate futures have priced in a 22.4% chance of a 50 basis point rate increase and a 77.6% chance of a 75 basis point rate increase at the monetary policy meeting in November. This was a classic example of good news being bad news.

Investors will be keeping a close eye on corporate earnings, FOMC minutes, and highly anticipated data for the U.S. consumer price index and producer price index throughout the week. In comparison to the previous readings of +0.1% m/m and +8.3% y/y, economists anticipate the September CPI to rise by an average of +0.2% m/m and +8.1% y/y.

A likely sign of a larger slowdown in core inflation is a moderate increase in goods prices, which should be reported in the September CPI report. However, the head of economic research at JPMorgan, Bruce Kasman, stated that “as long as labor markets shout tightness, the Fed will not respond to a whisper of inflation moderation

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In addition, market participants are likely to concentrate on a series of speeches by Evans and Brainard, two of the Fed’s policymakers, and Harker and Mester, two of the FOMC members, for additional clues regarding the path the Fed will take in regards to raising rates.

The 10-year interest rate in the United States is 3.888%, up +0.06%, on the bond markets.

The Euro Stoxx 50 is down -0.24% this morning as tensions between Ukraine and Russia are getting worse and concerns about rising global interest rates are getting worse. Wall Street and Asia have given European stocks a bad handover after main indexes continued to fall as investors worried about how rate hikes would affect economic growth and corporate profits.

In addition, in light of low industrial activity, the French central bank reduced its estimate of economic growth to 0.25 percent for the third quarter, slightly lowering the previous forecast of 0.3%.

Geopolitical tensions also grew as a result of Russia bombing cities across Ukraine on Monday morning after the Kremlin declared a terrorist attack on Russia’s sole bridge to Crimea.

Today saw the release of the Eurozone Sentix Investor Confidence Index.

The Eurozone October Sentix Investor Confidence Index was reported at -38.3, which is lower than the -34.7 that was anticipated.

Today, Asian stock markets closed in the red. After a week of holiday, the Shanghai Composite Index (SHCOMP) in China resumed trading and ended the day down -1.66 percent, while the Japanese market was closed for the holidays.

The Shanghai Composite closed today in the red as a result of an unexpected contraction in service sector activity. Meanwhile, the yuan strengthened in anticipation of additional government support.

The huge Chinese services sector unexpectedly contracted in September as a result of ongoing disruptions caused by COVID-related restrictions, as evidenced by the Chinese Caixin Services Purchasing Managers Index’s reading of 49.3, which was lower than the expectations of 54.5.

Additionally, the U.S. government’s Friday publication of new regulations restricting China’s access to semiconductor chips produced on U.S. equipment put pressure on local semiconductor stocks. Citi analysts wrote in a note that “the U.S. restrictions could make the development of China’s advanced chip technologies even more