Weekly Market Update Monday 5th December 2022

US stocks rallied for the second consecutive month since 2021

Most equity markets managed to finish the week in positive territory as of 8am London time, with the US stock market recording the first back-to-back monthly gains since mid-2021, with a sharp rally on the last day of November. The start of the week was marked by volatility especially in Chinese and Asian markets, as protests broke out in cities across China against the government’s continued strict Coronavirus lockdowns. However, equities rebounded strongly on Wednesday, led by the US, after Federal Reserve (Fed) Chair Jay Powell suggested it may be appropriate to slow the pace of interest rates rises.

After a series of 0.75% interest rate increases, Powell suggested the central bank could raise rates by 0.50% instead and that there could be a path to a soft landing, if labour markets cool without the economy entering a recession.

As of Friday, 8am London time, the US finished up by 1.28% with the US technology sector strengthening even higher by 2.28%. Returns in the UK and Europe were more modest, with both markets rising 0.96% and 0.73% respectively. Asian equities also rebounded by the end of the week on signals that the Chinese government was willing to ease lockdowns to appease the public. The Shanghai index finished the week up 1.76%, whilst the Hong Kong index rallied remarkably by 6.44%. Japan was an outlier, falling by 3.17%, as the export heavy index was weighed down by a stronger Yen.

The US dollar weakens against major currencies

Following Jay Powell’s remarks and a shift in market expectations over Fed rate rises, the US dollar weakened against its peers. The DXY, the measure of the dollar against a basket of major currencies fell 1.2%. Since September the dollar has weakened 8%. Inflation data out of the US on Thursday also contributed to the currency weakness with the Fed’s preferred measure of inflation, the US Core personal consumption expenditures index, rising by 0.2% in October, lower than the expected 0.3% rise. As of Friday, investors have turned their focus on the US jobs numbers which will be released today. Economists are expecting US non-farm payrolls to increase by 200,000, a decline from October’s reading of 261,000.

Government bonds extend gains

Major government bonds also strengthened on the back of Powell’s dovish comments. The benchmark 10-year US treasury yield (which moves inversely to the bond’s price) declined by 15 basis points to trade at 3.5%. Whilst the yield on the more interest rate sensitive 2-year US Treasury, declined by 19 basis points to 4.25%. Meanwhile, benchmark 10-year German bund yields and UK Gilts finished the week trading at 1.8% and 3.1% respectively.

Crude Oil prices strengthen after a string of weekly declines.

With news that some Chinese cities are relaxing their Covid measures, hope of higher oil demand pushed Brent crude oil prices higher by 3.81% to $86.82 per barrel as of Friday 8am London time. The WTI crude price rose by 6.67% over the week. Oil prices were also supported by reports that the US administration may pause sales from its strategic petroleum reserve.

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