While global equity markets have been on a positive trajectory this week amid inflation and recession concerns, next week’s eyes are on the intense data agenda, particularly US inflation.
While developments pointing to persistent inflationary pressures around the world continue, concerns are also growing that aggressive moves by central banks are increasing the risk of a recession.
REQUIRING ATTENTION TO ULTRA HAHIN ATTITUDE
In the report released by the United Nations Conference on Trade and Development (UNCTAD) in the first half of the week and in the speech of the President of the International Monetary Fund (IMF), Kristalina Georgieva, the ultra-mistaken attitude of the developed countries is central Banks could damage the global economy and the cautionary advice has limited risk perception.
On the other hand, in the macroeconomic data published during the week, signs of continued strong economic activity, particularly in the US, increased selling pressure on the stock markets.
Nonfarm payrolls rose by 263,000 in September, beating expectations, according to data released in the US on Friday, while the unemployment rate fell to 3.5 percent, the lowest since February 2020.
“FIGHTING INFLATION WILL TAKE TIME”
On the other hand, Federal Reserve (Fed) officials maintained their dovish word-of-mouth stance throughout the week.
Fed Board Member Philip Jefferson said that inflation is the biggest problem they face and that despite signs of progress it will take time to fight inflation.
San Francisco Fed Chairwoman Mary Daly stressed that the Fed has the necessary tools and knowledge to reduce high inflation and will use them, saying: “To reduce inflation, the rate hike must be continued.”
Minneapolis Fed President Neel Kashkari said they still have a long way to go to bring inflation down: “There is almost no sign that inflation has peaked. So the Fed is a long way from halting rate hikes.”
Chicago Fed President Charles Evans also said that the Fed’s interest rate is likely to rise to the 4.5% to 4.75% range by spring 2023.
BOND RATES ARE UP FOR THE 9TH CONSECUTIVE WEEK
Following these developments, the probability that the Fed will hike rates by 75 basis points in November rose to 81 percent, while there is a 63 percent probability that the bank will hike rates by 50 basis points at the December meeting.
Although the US 10-year bond yield fell to 3.56 percent during the week as expectations for a 75 basis point rate hike by the Fed next month strengthened, it ended the week at 3.89 percent, up 7 base points. It marked the highest weekly close since . Bond yields rose for the ninth straight week.
On the other hand, the decision by the Organization of the Petroleum Exporting Countries (OPEC) and the OPEC+ group, which consists of some non-OPEC producer countries, to cut daily oil production by 2 million barrels from November also supported the drop in risk appetite. Following the decision, US President Joe Biden ordered an additional 10 million barrels of oil to be released from the Strategic Oil Reserve next month.
ON THE TEN OF GOLD CONTINUE UP
Following these developments, Brent oil ended the week up 14.7 percent a barrel to $97.8, ending a five-week downtrend. The rise in question marked the strongest weekly rise since February 2022.
Analysts said that a fall in global oil supply at these levels will tighten the market significantly, saying the upward pressure it could put on oil prices could become more apparent as the epidemic in China is brought under control and demand picks up recovered.
Gold’s ounce price, on the other hand, carried the bullish trend for the second straight week, rising 2.06 percent on the weekly basis to reach $1,695.
EYES ON THE USA
Although US stock markets gave back a significant portion of their gains earlier in the week, ending the three-week downtrend, investors focused on the intense data agenda, particularly the Consumer Price Index (CPI) data to be announced next Thursday week.
While the job market in the country remains strong, it is noted that inflation data could increase volatility in the markets.
The Fed, which has hiked rates by 75 basis points over the past three meetings, is expected to make a similar move in November barring a significant fall in inflation.
On the other hand, while US moves to prevent some semiconductor chip parts exports to China are increasing risk perception in the markets, developments on the issue are predicted to increase asset price volatility over the next week.
The Supply Management Institute’s (ISM) non-manufacturing index came in better-than-expected at 56.7 in September, according to data released in the US this week, while job vacancies at JOLTS rose to 10 million in August 53 thousand fell, the lowest level since June 2021.
In the country, the ISM manufacturing index fell to 50.9, the lowest since May 2020, while private sector employment rose by 208,000 in September, beating forecasts.
As a result of these developments, the S&P 500 index on the New York Stock Exchange rose 1.51% weekly, the Nasdaq index rose 0.73% and the Dow Jones index rose 1.99%.
The data calendar for the week, beginning Oct. 10, also follows the Fed’s Producer Price Index (PPI) and meeting minutes on Wednesday, weekly jobless claims on Thursday and retail sales on Friday, and data from the University of Michigan Consumer Confidence Index.
IN EUROPE THE EYES ARE ON LAGARDES STATEMENTS
Despite energy supply concerns, inflationary pressures and a faltering European Central Bank (ECB), European stock markets followed a buying trajectory this week in line with global stock markets, while eyes are on next week’s announced inflation in Germany, with the speech on Thursday converted into data by ECB President Christine Lagarde on Wednesday.
The minutes of the ECB’s last meeting showed that the bank will continue its aggressive rate hikes. The minutes, which said inflation was very high and will remain above target over the long term, signaled interest rates would rise to 2 percent by the end of the year.
While the energy crisis in Europe and the measures being taken to address it were being closely followed, a warning came that the UK could face a three-hour blackout this winter due to falling energy imports.
While the German Economic Research Institute reported that prices will continue to rise in almost all areas in the coming months due to energy and other cost increases in the country, the President of the European Union (EU), Ursula von der Leyen, stated that an application working a temporary price cap for natural gas until a new price index is developed.
On the other hand, UK Treasury Secretary Kwasi Kwarteng announced that he would abandon the plan to abolish the top income tax bracket of 45 percent, which contradicts the country’s central bank policy.
According to data released in the region, the euro-zone PPI rose to a record 43.3 percent annually in August. September’s manufacturing purchasing managers’ index (PMI), which fell short of expectations in Germany and England, fell to 48.4 in the euro-zone, suggesting the sector’s contraction is continuing.
This week, the FTSE 100 index in the UK rose 1.41 percent, the DAX index in Germany rose 1.31 percent, the CAC 40 index in France rose 1.82 percent and the MIB 30 index in Italy rose 1.23 percent.
Next week will be followed by Tuesday’s UK unemployment, Wednesday’s euro-zone and Friday’s UK industrial production and euro-zone external trade balance data.
LATEST SITUATION IN ASIA
On the Asian side, equity markets followed a buoyant trajectory this week, while markets in China were closed midweek for the public holiday. Next week, eyes will turn to the CPI and PPI data to be released in China on Friday.
According to data released during the week, inflation in Japan came in at 2.8 percent annually in September, in line with expectations. Although the country’s manufacturing PMI fell 0.2 points to 50.8 in September, it remained within expansion territory, while the Tankan index, which measures confidence among major manufacturers, fell to 8 in the third quarter, below forecasts expectations.
Meanwhile, the Reserve Bank of Australia raised interest rates by 25 basis points to 2.6 percent and said it would maintain its hawkish stance in upcoming meetings.
The dollar/yen parity ended the week at 145.3, a level near its highest in 24 years, up 0.4 percent.
On the back of these developments, Japan’s Nikkei 225 index rose 4.55 percent, South Korea’s Kospi index rose 3.58 percent and Hong Kong’s Hang Seng index rose 3 percent on a weekly basis.
The data calendar for the week beginning October 10 tracks Tuesday’s foreign trade balance data in Japan. Markets in Japan are closed on Monday for a public holiday.
THE BLOOD LOSS CONTINUES IN TL
Domestically, the BIST 100 index closed weekly on Borsa Istanbul this week, while next week’s eyes will be on Balance of Payments to be announced on Tuesday and Industrial Production data on Wednesday.
Economists participating in AA Finans’ Expectations Surveys expect the current account to show a $3 billion deficit in August and the calendar-adjusted industrial production index to rise 4 percent in August from the same period last year.
According to inflation data released this week, the CPI rose 3.08 percent monthly and 83.45 percent annually in September.
The BIST 100 index ended the week at 3,597.60 points, up 12.19 percent, posting its highest-ever weekly close.
Dollar/TL was up 0.43 percent on the weekly basis to hit 18.5822.
Analysts noted that technically the 3,600 and 3,720 levels are being tracked as resistance and 3,550 and 3,480 as support in the BIST 100 index.
Next week will be followed Monday’s Unemployment, Friday’s Home Sales and Central Bank of the Republic of Turkey (CBRT) Market Participants Survey data. (AA)
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