As we are already approaching the end of the year, we see the Central Banks' latest interest rate decisions for the year. The continuation of the interest rate hike cycle seems to have given cause for pessimism in the markets. The S&P 500 Index (US500) has fallen by 1.9% since the start of the week. However, we could still see optimism in the Chinese markets following reports of a reduction in the zero-Covid policy restrictions.
Macroeconomic data
On Monday, we learned the results of the US and UK service sector PMIs. The reading for the US was 56.5 points (53.3 expected) and for the UK 48.8 points (48.8 expected). We seem to be able to see a stagnation among business expectations, as the values do not seem to have changed over the last three months. On the same day, we learned of the Central Bank of Australia's decision to raise interest rates to 3.1% (previously 2.85%), which was in line with analysts' consensus.
On Tuesday, we learned about GDP growth in Australia, which came in at 0.6% q/q (0.7% q/q was expected). We also learned about the decision of the Central Bank of India, which decided to raise the benchmark rate as expected to 6.25% (previously 5.9%). Particularly important for the energy and commodity markets on the day was the report from the US Energy Information Administration (EIA), which gave its forecasts for future energy prices. It predicts that the price of WTI crude oil (XTIUSD) could stabilize next year and be in the range of US$92.36/b.
Source: Conotoxia MT5, XTIUSD, Daily
On Wednesday, we learnt of the Central Bank of Canada's decision, which, like its aforementioned predecessors, raised interest rates to 4.25% (previously 3.75%). Japan's quarterly GDP reading appears to have shown signs of a slowdown for the cherry blossom country. Japan's GDP fell by 0.2% q/q. (a decline of 0.3% q/q was expected) against a previous increase of 1.1%. On the same day, we learnt the weekly reading of crude oil inventories, which fell for the 4th week in a row. The current decline was larger than analysts' expectations at 5.2 million barrels (a decline of 3.3 million barrels was expected). It appears that this may have supported the fall in the price of the commodity.
On Thursday, we learnt the number of new claims for unemployment benefits in the United States, which came in line with expectations at 230,000 (previously 226,000 claims).
The stock market
This week did not seem positive for the stock market. The main US S&P 500 index has fallen by 1.9% since the start of the week. The most declining company on the index was US electricity and natural gas generation and distribution company NRG Energy (NRGEnergy), whose share price fell by more than 20%. The FAANG technology companies performed particularly poorly this week. Google (Alphabet) shares fell by 7.2%, Apple (Apple) fell by 3.8% and Amazon's valuation fell by 5.3%. Large declines were seen in the energy sector. The value of the Energy Select Sector SPDR Fund (XLE) fell by more than 7%. This appears to be due, among other things, to declines in oil prices.
Source: Conotoxia MT5, NRGEnergy, Daily
On Tuesday, we learned the third quarter results of, among others, car and truck parts and accessories company AutoZone (AutoZone). Earnings per share EPS surprised analysts positively at 27.45 (25.26 was expected). On Wednesday, liquor producer Brown-Forman Corporation (BrownForman), which has a broad portfolio of brands including Jack Daniel's, Woodford Reserve, Old Forester, Canadian Mist and Finlandia, reported quarterly results. Its EPS was worse than expected at 0.47 (0.55 was expected).
On Thursday, we learnt the results of the company that designs and manufactures integrated circuits and other electronic components, Broadcom (Broadcom), which reported EPS of 10.45 (10.28 was expected). On the same day, the results of shop chain Costco (Costco) came in below expectations, showing earnings per share of 3.07 (3.12 expected).
Currency and cryptocurrency market
The foreign exchange market saw the following rate changes over the past week. We could see the biggest increases in the EUR/JPY (up 1.4%) and USD/CAD (1.1%), while the other popular pairs saw little or no change. We seem to be able to deduce from this a weakening of the Japanese yen after the falling GDP data and a weakening of the Canadian dollar after the interest rate decision. The currency market seems to have been fairly stable this week.
Source: Conotoxia MT5, EURJPY, Daily
The cryptocurrency market seems to be able to feel the thaw. The price of bitcoin (BTCUSD) has risen by 1.4% since the beginning of the week, and the price of ethereum (ETHUSD) has risen by more than 2%. The most rising cryptocurrency was Axie Infinity (AXSUSD), which has risen by 17.2% since the beginning of the week. It seems that the saying "buy when the blood pours" is starting to find confirmation in this market. However, we would have to wait a little longer to be able to say that definitively.
Source: Conotoxia MT5, BTCUSD, Daily
What can we expect next week?
Next week's key macroeconomic data will start with Monday's UK quarterly GDP reading after the recent 0.2% quarter-on-quarter decline. On Tuesday, we will learn Germany's CPI inflation reading. Analysts are expecting no change. The previous reading was 10% y/y. On the same day, inflation in the United States (previously 7.7% y/y) will also be known.
On Wednesday, the Fed's US interest rate decision seems particularly important, immediately followed by a conference call by chairman Jerome Powell. In addition, an inflation reading will be given on that day by the UK, for which analysts expect inflation to fall to 10.9% y/y. (previously 11.1% y/y). Wednesday seems particularly important for the currency market and borrowers. Interest rate decisions will be given by the central banks of Switzerland, the UK and the European Central Bank. The week will close with the Eurozone CPI inflation reading.
In the stock market on Monday, we will learn the Q3 results of this year's company Oracle (Oracle), on which we wrote a commentary. On Wednesday, we will see the report of the company that builds and sells single-family homes and manages residential properties in the US Lennar (Lennar). On Thursday, we will see the results of the company selling software for artists and businesses Adobe (Adobe).
Grzegorz Dróżdż, Junior Market Analyst of Conotoxia Ltd. (Conotoxia investment service)
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