The past week was full of central bank decisions on interest rates. As many as 11 were made, with those of the key global economies appearing to be particularly important.
Macroeconomic data
On Monday, the UK reported a GDP reading of 1.5% y/y. (1.4% y/y was expected). This is a noticeable slowdown for this economy, which as recently as September was reporting growth of between 4 and 8% y/y. UK manufacturing grew by 0.7% m/m. (0.1% was expected).
We started Tuesday with the German CPI inflation reading. There was a gentle and in line with expectations drop to 10% y/y. Next, we learnt about the reading of the ZEW index reflecting sentiment among the country's entrepreneurs. It came in at -23.3 points (-26.4 points were expected), marking the third consecutive month of improved sentiment.
Tuesday also brought CPI inflation data in the United States, where price dynamics declined for the fifth consecutive month, this time to 7.1% y/y. (7.3% y/y was expected). This reading may have caused the S&P 500 Index (US500) to rise temporarily, by more than 2%.
Source: Conotoxia MT5, US500, Daily
Wednesday brought us the CPI inflation reading from the UK to start with. It came in below expectations at 10.7% y/y. (10.9% y/y was expected). On the day, we learned of the weekly change in US crude oil inventories, which surprised analysts with an increase of as much as 10.23 million barrels of oil (a decrease of 3.59 million was expected). However, the most important news of the day may have been the Fed's interest rate decision and the subsequent conference by chairman Jerome Powell. As expected, interest rates were raised to 4.5% and new forecasts for the economy were immediately released: GDP, unemployment rate and inflation. We reported the exact figures in our commentary on this topic. The market seemed to react negatively to the announcement of further interest rate rises in the USA.
Three key central banks announced their interest rate decisions on Thursday. The Swiss Central Bank raised rates to 1% (1% was expected), the highest level for that economy since the 2008 crisis. The Bank of England raised rates by 0.5 percentage points and they now stand at 3.5% (3.5% was expected) and the European Central Bank increased lending rates to 2.75% (2.75% was expected). The published forecasts for the economies assume a worse performance than previously expected. It may seem natural for markets to react to this data. The value of the London Stock Exchange's largest index, the FTSE (UK100), has fallen by 1.5% since the start of the week.
Source: Conotoxia, MT5, US100, Daily
At the end of the week, we learnt about the reading of the PMI index for industry in Germany. It came in at 47.3 points (46.3 points were expected). We could see a warming of mood among German industry managers since last month. The same index fell slightly worse for the UK economy, with 44.7 points (46.5 expected), where the downward trend continues. The most important data appears to be the Eurozone CPI inflation reading, which came in at 10.1% y/y. (10% y/y was expected), which could mean that inflation is not falling as fast as expected.
Equity market
This week we could see declines in most sectors in the US, with the strongest affecting basic materials, as illustrated by the listing of the Materials Select Sector SPDR Fund (XLB) down 3% since the start of the week.
Source: Conotoxia MT5, XLB, Daily
Of the key Q3 earnings reports, we could see a reading for database and database management software company Oracle (Oracle) on Monday. It reported earnings per share EPS of 1.21 (1.16 was expected). On Wednesday, homebuilding company Lennar reported its quarterly report. Its EPS was more positive than expected at 5.02 (4.88 expected). Thursday technology company that creates software for designers Adobe, among others, reported EPS of 3.6 (expected 3.5).
Currency and cryptocurrency market
Once again, it was a week in which the US dollar seemed to lose value. The EUR/USD exchange rate rose by almost 1% to levels of 1.06. In absolute terms, the Australian dollar was the most depreciating currency. The AUD/USD fell by 1.4% this week, which may have been influenced by the strong dependence of the Australian economy on the price of raw materials, which have been cheapening recently.
Source: Conotoxia MT5, AUDUSD, Daily
The euro had the biggest strengthening this week. The European currency's EUR/GBP pair to sterling rose by 1.6% following Thursday's interest rate rises for both economies.
The cryptocurrency market seems to be unable to make up its mind: over the course of this week, bitcoin (BTCUSD) first rose by almost 9%, only to return to the levels of the beginning of the week. It seems that a change in trend has not occurred here yet.
Source: Conotoxia MT5, BTCUSD, Daily
What can we expect next week?
The end of next week will see the start of the holidays, and for this reason many stock exchanges will close earlier than usual. On Monday, we will see readings of the German ifo business sentiment index. The analysts' consensus expectation is 87.4 points (previously 86.3 points). On Tuesday, we will see the number of new building permit applications in the US. The expected number is 1.47 million (previously 1.5 million). On Wednesday, the September reading of the Consumer Confidence index, for which the forecast is 100 points (previously 100.2 points), seems important. On the same day, we will learn the weekly reading of the change in oil stocks. Wednesday will bring us the quarterly US GDP reading. Annualised growth of 2.9% q/q is expected. (previously 2.9% q/q).
In the stock market, shoe manufacturer Nike (Nike) and transport giant FedEx (FedEx) will present their quarterly reports on Tuesday, while US-based storage and other electronic components company Micron (MicronTech) will report on Wednesday. On Thursday, payroll and corporate accounting management services company Paychex (Paychex) will be one of the last to present a report.
Grzegorz Dróżdż, Junior Market Analyst of Conotoxia Ltd. (Conotoxia investment service)
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