Market news – Week 3, September 2022

The financial markets saw a sharp change in trend from the previous week as inflation took centre stage. Overall, the financial markets traded in the red due to the Federal Reserve’s actions and new economic data in the US.

Forex

Fed Chairman Jerome Powell's aggressive tone was rejected by traders, who expected inflation to be moderate and the Fed’s policy to tighten following September's rate hike. The price rises, however, are relentless. August's Core Consumer Price Index (CPI) increased by 0.6% (MoM), above forecasts. Other CPI measures also rose, resulting in expectations of a 100 basis points rate hike.

The EUR/USD fell and only made tiny recoveries in response to poor US data, such as disappointing retail sales estimates. In nominal terms, inflation is outpacing consumption.

With respect to the monetary policy, European Central Bank (ECB) officials overwhelmingly endorsed a substantial rate increase in October. This contrasts with ECB President Christine Lagarde's more nuanced stance following the recent rate decision.

Even though the euro is fighting hard, the US dollar seems to be holding on tight.

The GBP/USD failed to maintain its bounce, falling roughly by 200 pips. The pair finished the week in the negative, trading below $1.1500. The decline in the pair's prices could be due to disappointing retail sales in the UK. Sales volumes in the retail sector declined by 1.6% in August, continuing with the summer of 2021 trend.

This week will be important for the markets as the Fed and Bank of England decide on interest rate hikes.

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Commodities

Gold started the week at around $1,720. As the US dollar continued to rise, gold dropped to its lowest level since April 2020 and finished the week at a notably lower price of $1,675, just under 3% from its price at the start of the week.

That being said, the expectation of a significant rate hike by the Fed on Wednesday, 21 September 2022, appeared to be a crucial factor exerting downward pressure on gold on the final day of the week.

Meanwhile, silver prices began trading at around $18 and ended at approximately $20. Despite growing concerns that the US central bank's tightening might cause a recession, US economic statistics showed that consumer sentiment continued to improve, driving up this precious metal's price.

WTI prices hovered around $85 due to fears of a long-term decline in global energy demand. Because of the same reasons mentioned above, oil prices have fallen by around a quarter in the last 3 months. 

The World Bank and the International Monetary Fund warned of an imminent global economic downturn in late 2022/23, weighing on morale. Furthermore, the strong US inflation data released earlier last week boosted the US dollar, which hurt the market (because oil is traded in US dollars, making it costlier for overseas customers).

Cryptocurrencies

The global cryptocurrency market crashed last week, with all the major cryptocurrencies trading in the red. The previous week's uptrend was short-lived as the global market capitalisation returned to the sub-$1 trillion level, and the trading volume stood at the mid-$60 billion mark. 

Bitcoin, as usual, was in the eye of the storm. On Tuesday, 13 September 2022, the largest cryptocurrency in the world by market capitalisation dropped from the $22,500 level to the $20,400 level, sending the crypto market into a frenzy. The coin experienced further losses during the week and is trading at $19,716.64 at the time of writing. 

Bitcoin's market value stood at around $370 billion, and the trade volume was approximately $30 billion. The token has slumped by 12.5% in the last 6 days.

Meanwhile, the Merge effect seems to have worn off as Ethereum followed Bitcoin's footsteps, dropping below the $1,400 level for the first time since mid-July. 

Bitcoin’s decline and Ethereum's price drop after the Merge have also been reflected in other altcoins, such as Litecoin and Dogecoin, which dropped by 15% and 11%, respectively. 

In other news, President Joe Biden outlined the plans for cryptocurrency regulation as the government realises the importance of digital assets in fostering innovation and supporting the country's technological advancement. 

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US stock markets 

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The stock market fell sharply as inflation fears intensified, and short-term bond yields reached levels last seen in 2007. The S&P 500 index fell by around 4.77%,  its biggest weekly decline since June. Furthermore, growth stocks fared the worst, with the technology-heavy Nasdaq 100 falling by nearly 5.77% and the Dow Jones Industrial Average falling by approximately 4.13%.

Within the S&P 500 index, shares of communication services and information technology fell as Google parent Alphabet and Facebook parent Meta Platforms hit new 52-week lows. The industrial and materials sectors also suffered.

According to the consumer price index (CPI) data released on Tuesday, 13 September 2022, which exceeded expectations, traders began losing faith in the notion that "peak inflation" had passed. The prices increased by 8.3%, higher than consensus predictions of a gain of around 8.1%. However, the increase in core inflation (excluding food and energy) was alarming. It reached 6.3%, its highest level since March and higher than the estimate of 6.1%.

This week's focus will be on the Federal Open Market Committee (FOMC) meeting, as the Fed has emphasised lowering inflation over ensuring strong economic demand.

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