While global equity markets have been on a mixed trajectory between inflationary and recessionary dilemmas this week, next week was geared towards the intense data agenda, particularly interest rate decisions by European and Japanese central banks.
While global equity markets have been on a mixed trajectory between inflationary and recessionary dilemmas this week, next week was geared towards the intense data agenda, particularly interest rate decisions by European and Japanese central banks.
While inflationary pressures and tightening monetary policy around the world are fueling selling pressures in bond markets, US bond yields have been rising for the past 12 weeks.
Accordingly, US 10- and 5-year bond yields are testing their highest levels since 2007, while signs of recession fears are mounting in macro data.
“WE WILL ENTER THE RECESSION IN BETWEEN 6 TO 18 MONTHS”
While the spread between the US 10-year bond yield and the 3-month Treasury bill yield narrowed by about 20 basis points to 23 basis points over the past week, when the 3-month Treasury bill yield exceeds the 10-year bond yield, the Federal Reserve (Fed) Studies It is estimated that the country’s economy could enter a recession in 6 to 18 months.
While data on the country’s housing market suggests that the slowdown has become more pronounced, interest rates on 30-year mortgages (home loans), which have risen to 6.94 percent, are at their highest level in the last 20 years.
While it is certain that the US Federal Reserve (Fed) will hike rates by 75 basis points in the next monthly meeting, expectations that the bank will hike rates by 75 basis points in December faded as recession fears mounted.
While earlier in the week the Fed was pricing in a 75 percent chance of raising rates by 75 basis points in December, yesterday’s comments from San Francisco Fed Chair Mary Daly dropped that chance to 50 percent.
EVALUATION OF THE RATE GROWTH
In his speech yesterday, Daly said the Fed should avoid pushing the economy into a “non-essential recession” by raising rates too much and that it was time to talk about slowing the pace of rate hikes slow it down.
On the other hand, the flow of news in the US media that the Fed will provide estimates of the rate of increase after next month’s meeting also affected the change in expectations.
While the barrel price of Brent oil rose 1 percent this week to $91.6, the price of an ounce of gold rose on the possibility that the Fed could end its ultra-hawkish policy, ending the Week at $1,658 up 0.9 percent.
THE BALANCE SEASON BEGINS IN THE USA
U.S. equity markets followed a buying-heavy trajectory this week on both better-than-expected corporate profitability and expectations that the Fed’s ultra-hawkish monetary policy is nearing its end while corporate balance sheet results do so will intensify next week, as well as the macroeconomic data, particularly growth data on Thursday, and are expected to impact the direction of the markets.
While third-quarter financial results for US companies were followed throughout the week, risk appetite was seen to increase after banks that released their balance sheets beat market expectations, despite falling profitability.
Electric car maker Tesla fell short of market expectations, although its sales rose to $21.5 billion in the third quarter of this year.
Global Internet TV network Netflix’s subscriber base grew by 2.41 million in the third quarter after losses in the first two quarters of this year.
“Economic outlook has become more pessimistic”
On the other hand, the October issue of the Fed’s Beige Book report, which provides assessments of the current state of the US economy, reported that US companies had become more pessimistic about the economic outlook amid growing concerns about the slowdown.
Industrial production rose 0.4 percent on a monthly basis in September, ahead of market expectations, according to macroeconomic data released in the country.
Meanwhile, the New York Fed manufacturing index fell to -9.1 in October, suggesting the sector has shrunk above market expectations.
US used home sales declined 1.5 percent monthly on rising mortgage (home loan) rates and high house prices in September and continued their decline through the 8th month.
With these developments, the S&P 500 Index was up 4.74 percent weekly, the Nasdaq Index was up 5.22 percent and the Dow Jones Index was up 4.89 percent on the New York Stock Exchange.
In the data calendar for the week beginning October 24, Monday’s Chicago National Activity Index and Manufacturing and Services Purchasing Managers’ Index (PMI), Tuesday’s Consumer Confidence Index and Wednesday’s Richmond Fed Industrials Index, Wholesale Inventories and New Home Sales, are Orders durable goods on Thursday, personal data on Friday), income, personal spending, pending home sales and Michigan consumer confidence index data are tracked.
EYES ON THE ECB IN EUROPE
Although political uncertainty in the UK added to ongoing energy supply concerns in Europe, while equity markets ended the week higher, eyes are on next week’s intense data agenda, particularly the European Central Bank’s (ECB) interest rate decision. Thursday and ECB President Christine Lagarde’s speech translated.
While the ECB is forecast to hike interest rates by 75 basis points on pricing in money markets, the messages Lagarde will deliver in his post-meeting speech are important for asset prices.
Political developments moved to the center of the agenda following the resignation of British Prime Minister Liz Truss later in the week.
In the country, former Prime Minister Boris Johnson and former Finance Minister Rishi Sunak are expected to be among the candidates in the leadership race to start fresh in the ruling Conservative Party.
As the UK bond markets faltered last week, the Bank of England (BoE) announced it had decided to sell £80 billion worth of UK government bonds from early November.
GEOPOLITICAL RISKS ON THE AGENDA
In the region, where geopolitical risks are off the agenda, European Union (EU) countries have decided to impose sanctions on Iran for sending unmanned aerial vehicles to Russia to use in the war in Ukraine.
On the other hand, the heads of state and government of the EU member states could not agree on a maximum price for natural gas on Thursday.
Inflation in England, led by energy and food prices, continued to rise, according to macroeconomic data released in the region, reaching a 40-year high of 10.1 percent in September.
In the euro zone, inflation, which stood at 9.1 percent in August, broke a new record at 9.9 percent in September. Lead figures and market expectations for the above data pointed to 10 percent.
This week, the FTSE 100 index in the UK rose 1.62 percent, the DAX index in Germany rose 2.36 percent, the CAC 40 index in France rose 1.74 percent and the MIB 30 index in Italy rose 3.04 percent.
Next week will be followed by region-wide manufacturing and services PMI on Monday, Ifo Business Environment Confidence Index, Friday Growth and Consumer Price Index (CPI) and Eurozone Consumer Confidence Index.
LATEST SITUATION IN ASIA
While Asian equity markets were on a high-volume course this week, next week’s eyes turned to the Bank of Japan’s (BoJ) monetary policy decisions on Friday.
Although the BOJ is expected to change interest rates at next week’s meeting, the dollar/yen parity tested 151.9 and rose above the psychological 150 threshold for the first time since August 1990 after inflation in Japan hit a yearly high of 3 percent in September.
While discussions of the BOJ’s ability to fine-tune its dovish stance amid mounting price pressures and accelerating yen depreciation remained on the agenda, the dollar-yen parity ended the week down 0.9 percent at 147.3 on the intervention BoJ.
After the 10-year Japanese bond yield breached the 0.25% tolerance limit, the BOJ announced its unscheduled asset purchases.
In China, China’s National Bureau of Statistics postponed the release of some economic data, including growth for the third quarter, which was due to be released within the week, without giving a reason.
While this situation questioned the Chinese economy, news that the US was planning new restrictions against China, including artificial intelligence and quantum technologies, was also effective in reducing risk appetite.
According to other macroeconomic data released in the region, industrial production in Japan rose 3.4 percent in August, after rising 2.7 percent in July. The People’s Bank of China also did not change the interest rate on the one-year medium-term credit facility.
On the back of these developments, China’s Shanghai Composite Index fell 1.08 percent, Japan’s Nikkei 225 Index fell 0.74 percent and Hong Kong’s Hang Seng Index fell 2.27 percent on a weekly basis, while South Korea’s Kospi Index fell on the week closed in line with the previous closure. .
The data calendar for the week beginning October 24 tracks China industrial profitability on Thursday, unemployment in Japan and Tokyo CPI data on Friday.
DOMESTIC BIST 100 INDEX RECORD
Domestically, the BIST 100 index closed weekly on Borsa Istanbul this week, while the Central Bank of the Republic of Turkey (CBRT) cut interest rates by 150 basis points to 10.50 percent over the week.
The CBRT’s announcement on interest rates said, “After a similar move was taken at the following meeting, the board considered ending the cycle of rate cuts.”
The BIST 100 index ended the week at 3,934.63 points, up 8.48 percent, posting its highest-ever weekly close.
While USD/TL followed a horizontal course on a weekly basis, it closed the week at 18.5956, up 0.1 percent from the previous weekly close.
Analysts noted that technically the 3.950 and 4000 levels are being tracked as resistance and 3.900 and 3.880 as support in the BIST 100 index.
Next week will be followed by Real Sector Confidence Index and Capacity Utilization on Tuesday, External Trade Balance and Economic Confidence Index on Thursday and CBRT Inflation Report next week. On Friday, October 29, Saturday, there will be half a day of trading on Borsa Istanbul due to Republic Day. (AA)
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