Stock indices decline amid rising government bond yields

October 20, 2022

“The Beige Book” showed a slowing US economy, declining consumer sentiment, and slowing demand. Real estate market data showed a decline in new home construction in the US, and the real estate market is likely to continue its downward trend amid rising interest rates.

Fed spokesman Kashkari said yesterday that the Fed would raise interest rates as long as core inflation (excluding food and fuel prices) begins to cool.

US stock indices fell yesterday as Treasury yields rose. Quarterly reports, which were mostly better than expected, did not help the indices either. At the close of trading yesterday, Dow Jones (US30) decreased by 0.33%, S&P 500 (US500) lost 0.67%. The NASDAQ Technology Index (US100) was down by 0.85%.

“Despite persistent underlying inflation pressures, the Fed will continue tightening at a faster pace than originally anticipated,” Morgan Stanley said in a note predicting that the Fed will raise rates by 75 basis points in November, 50 basis points in December, and 25 basis points in January.

On the other hand, the US midterm elections on November 8 are just three weeks away. Analysts believe the stock market will show optimism by that date, and oil prices will decline. Otherwise, with a recession looming, confidence in the current government might fall even more.

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Equity markets in Europe were mostly down yesterday. German DAX (DE30) fell by 0.19%, French CAC 40 (FR40) was 0.43% lower, Spanish IBEX 35 (ES35) decreased by 0.36%, British FTSE 100 (UK100) closed by 0.17% lower on Wednesday.

The annual inflation rate in the Eurozone rose to 9.9% in September 2022, up from 9.1% in August. Core inflation, which excludes food and energy prices, increased to 4.8% from 4.3%. The lowest annual rates were registered in France (6.2%), Malta (7.4%), and Finland (8.4%). The highest annual rates were registered in Estonia (24.1%), Lithuania (22.5%), and Latvia (22.0%). According to a report released by Eurostat, inflation remains high in almost all categories. Amid this jump in consumer prices, ECB spokesman Vasle indicated yesterday that the Central Bank should raise the interest rate by 75 basis points at the next two meetings.

EU countries are planning to impose sanctions against Iran for supplying military drones to Russia, which the latter is using in the war against Ukraine.

The US Department of Energy will sell another 15 million barrels of oil from the US strategic reserve and plans to resume oil purchases to replenish its strategic oil reserve at an oil price of less than $70. The administration sees the need to ramp up US oil production, with a peak in 2023. But oil bears hoping for a new price drop on this news have failed, as weekly crude and fuel inventories have fallen significantly over the past week.

Asian stock indexes were trading yesterday without a single trend. Japan’s Nikkei 225 (JP225) gained 0.37% yesterday, Hong Kong’s Hang Seng (HK50) lost 2.38%, and Australia’s S&P/ASX 200 (AU200) added 0.31%.

Japan’s imports rose for the fifth straight month in September, reaching an all-time high, as the falling yen exacerbated already high fuel import costs, fueling fears of cost inflation. Import growth outpaced export growth, leading to a 2 trillion yen ($13.3 billion) trade deficit and extending the deficit to 14 months, adding downward pressure on the Japanese currency.

The NBK’s benchmark lending rate remained at 3.65%, but China indefinitely postponed the release of other key trade and economic growth data this week. President Xi Jinping also said China has no plans to soften its strict zero COVID policy, which has caused severe economic turmoil in the country this year. Deteriorating economic trends in China have undermined attitudes toward most Asian markets, given the country’s role as a major trading partner in the region.

S&P 500 (F) (US500) 3,695.16 −24.82 (−0.67%)

Dow Jones (US30) 30,423.81 −99.99 (−0.33%)

DAX (DE40) 12,741.41 −24.20 (−0.19%)

FTSE 100 (UK100) 6,924.99 −11.75 (−0.17%)

USD Index 112.90 +0.77 (+0.69%)

Important events for today:

– US FOMC Member Bullard Speaks at 01:30 (GMT+3).
– Australia Unemployment Rate (m/m) at 03:30 (GMT+3);
– China PBoC Loan Prime Rate (m/m) at 04:15 (GMT+3);
– Germany Producer Price Index (m/m) at 09:00 (GMT+3);
– Eurozone EU Leaders Summit (m/m) at 13:00 (GMT+3);
– US Initial Jobless Claims (w/w) at 15:30 (GMT+3);
– US Philadelphia Fed Manufacturing Index (m/m) at 15:30 (GMT+3);
– US Existing Home Sales (m/m) at 17:00 (GMT+3);
– US Natural Gas Storage (w/w) at 17:30 (GMT+3).

By JustMarkets

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.

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Stock indices decline amid rising government bond yields