It has been a choppy week for equity markets as third-quarter company results have taken centre stage, as investors look for evidence of inflationary pressures, rising borrowing costs, and challenging economic conditions. US global investment banks, although reporting weaker earnings, nonetheless beat forecasts, as earnings from consumer lending helped to temper falling investment bank revenues. Along with news that the UK’s new Chancellor of the Exchequer, Jeremy Hunt, had thrown out almost all of the mini-budget tax cuts, these brought a fillip to the beginning of the week. However, later, results from the likes of Procter & Gamble and Nestlé pointed towards falling earnings, as consumers traded down to minimise the impact of inflation.
The bearish end to the week was reinforced by the latest US initial unemployment claims figures, which unexpectedly fell from 226,000 in the previous week, to 214,000, quickly erasing any thoughts of a Federal Reserve (Fed) pause in the rate hiking cycle.
The resignation of the UK’s Prime Minister Liz Truss after just 44 days in the job went by almost unnoticed by markets. However, by Friday, as talk of a Boris Johnson comeback materialised, Sterling fell, and UK gilts sold off as the effects of uncertainty came to bear once more. As of 12pm on Friday, London time, US equities rose 2.3% over the week, with the US technology sector climbing 2.8%. European equities were flat, whilst the UK market crept up by 0.1%. Japanese stocks fell by 0.9%, with the Japanese Yen weakening to ¥150.96 versus the dollar, the lowest point in over 32 years. Australian equities fell by 1.2%, whilst domestic Chinese ‘A’ shares lost 1.1%, and Hong Kong stocks dropped by 2.3%. However, Latin American stocks rose by 5.1%, dragging up the Emerging Markets to finish 0.2% higher.
10-year US Treasury yields, which move inversely to price, rose to 4.31% and German bunds yields traded up to 2.50%. However, following the abandonment of the mini-budget, UK gilt yields fell as low as 3.78% on Thursday as Liz Truss resigned, however, by Friday they were creeping up once more, now trading at 4.08%. Sterling, having rallied back up to $1.14 and €1.16 on Monday, is now trading back down at just under $1.11 and €1.14.
Gold fell 1.6% on expectations of continued tightening from the Fed, currently trading at $1,623 an ounce. Whilst Brent crude was steady over the week, rising 0.8% to $92.4 a barrel. European natural gas prices continued to fall, falling by 19% over the week, now trading at €114.5 megawatt hour, or a 63% fall since its peak at the end of August. However, it remains more than five times as expensive versus the beginning of 2021.
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