And so we carry on…

And so we carry on…
  • US inflation rise hits investor expectations
  • Europe’s energy decisions
  • The BoE to risk recession
  • Happy Merge Day!
  • Key data for the coming week

S&P 500   4.33% QTD and  17.14% YTD
Nasdaq 100   5.59% QTD and  25.58% YTD
Dow Jones Industrial Average   1.07% QTD and  14.40% YTD
NYSE   2.45% QTD and  13.52% YTD 

Stoxx 600   2.53% QTD and  14.41% YTD
DAX   1.91% QTD and  17.98%YTD 
CAC 40   5.06% QTD and  13.01% YTD 
IBEX35   0.53% QTD and  7.55% YTD 
FTSE MIB   5.26% QTD and  18.04% YTD
FTSE 100   1.51% QTD and  1.45% YTD

MSCI World Index   2.30 QTD and  19.12% YTD
Bitcoin   1.63% MTD and  57.08% YTD

Note: As of 5:15 pm EST 14 September 2022

The inflation monster returns. The unexpected rise in core CPI, inflation ex food and energy, the number the Fed focuses on, to 6.3% y/o/y in July from 5.9% in June dragged markets down on Wednesday and Core PPI rose 0.2%, increasing 5.6% y/o/y. Markets have priced in a 75 bps rise when the Fed meets on 20-21 September with increasing expectations of a 100 bps rate rise. As a result, the USD strengthened this week against the EUR, the GBP and the YEN.  The surge in yields hit growth and tech stocks this week with MicrosoftAmazonAlphabetNvidia and Meta Platforms all down. Energy stocks remained elevated this week with Occidental PetroleumDevon Energy CorpHalliburton CompanyMarathon Oil CorporationPioneer Natural Resources, and Coterra Energy all up. 

Energy showdown. Following on from EC President Ursula von der Leyen’s proposals last week, the European Commission is looking to introduce regulatory changes to reduce the liquidity squeeze in the energy sector. These include raising the clearing threshold for commodities and other derivatives to €4 billion and allow bank guarantees to be accepted as collateral against margin calls. This is needed as utilities are more likely to hold short hedging positions against the physical contracts they have for buying wholesale gas and power. So if prices rise very quickly, they require more cash to secure them. Without cash reserves, they will collapse. The EC is also proposing to raise €140bn from an EU wide windfall tax; this would be done by setting a mandatory threshold for prices charged by companies that produce low-cost, non-gas energy. According to the Financial Times, companies would have to give EU states the “excess profits” generated beyond this level, which the commission seeks to set at €180/MWh. But member states would be free to put in place lower thresholds of their own.

The Bank of England’s solemn pledge? The BoE, having delayed its meeting this week in light of Queen Elizabeth II’s death, will meet next week. Market traders expect it to raise rates again, up to 75 bps to 2.50%, in a bid to fight inflation. This is despite UK CPI dropping to 9.9% in August from 10.1% and GDP in the 3 months to July being flat compared with the previous three-month period. Unemployment did fall to 3.6% in the three months to July, the lowest level since 1974, but this was largely due to the inactivity rate rising 0.4% to 21.7%. The BoE is likely focusing on rising wages, with wages excluding bonuses up 5.2% and the effect of the extra fiscal stimulus from the government’s energy price cap, may have.

Crypto’s second wave. The “Merge” has taken place today. According to Bloomberg, Ethermine, the largest Ethereum mining services provider by computing power, will shut down its servers for miners after the merge is completed. This means that it will no longer be possible to mine Ether on the Ethereum network as this will, post Merge, be done by validators and will make Ethereum scarcer. Ethereum has already risen on the first day of the Merge. The Merge, which moves from a proof of work to a proof of stake, is expected to reduce Ethereum’s energy consumption by 99%. The Merge will continue to be watched very closely by crypto investors as its impact is felt by the blockchain industry.

Key data to look out for this coming week 

In Europe: On Friday look out for Eurozone HICP data. On Thursday is the ECB Economic Bulletin and Eurozone Consumer Confidence Survey data.

In the UK: On Friday is retail sales data and the Bank of England Quarterly Bulletin. On Thursday the Bank of England monetary policy interest rate decision and monetary policy statement. There is also the GfK Consumer Confidence survey results.

In the US: On Friday Michigan Consumer Sentiment Index. On Tuesday Building permits, Housing starts. On Wednesday all eyes will be on the Fed interest rate decision and monetary policy statement. On Thursday there’s initial and continuing jobless claims, 

DISCLAIMER: While every effort has been made to verify the accuracy of this information, EXT Ltd. (hereafter known as “EXANTE”) cannot accept any responsibility or liability for reliance by any person on this publication or any of the information, opinions, or conclusions contained in this publication. The findings and views expressed in this publication do not necessarily reflect the views of EXANTE. Any action taken upon the information contained in this publication is strictly at your own risk. EXANTE will not be liable for any loss or damage in connection with this publication.

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