Market news – Week 1, October 2022

Last week, rising interest rates, extreme volatility in the currency and bond markets, and concerns about a recession fueled the uncertainty that plagued traders in recent weeks.

Forex

The EUR/USD pair began last week on the back foot, dropping to just under $0.9540 before reversing course mid-week to make significant gains. It finished the week at around $0.9800.

Rising energy prices prompted another surge in European inflation, with the eurozone announcing that its key inflation index grew at an annual rate of 10% in September, up from 9.1% in August.

A possible concern of the European Central Bank (ECB) is that an increase in borrowing rates in Europe might harm debt-ridden nations. However, the ECB is expected to raise its main refinancing rate on Thursday, 27 October, with a 0.75% increase to keep up with the US central bank.

The EUR/USD may have responded to US inflation statistics, which indicated that consumer prices remain high. The United States consumer expenditure data also increased, indicating that the American people continue to be purchasers even as inflation rises.

By the end of the week, GBP/USD had also reversed course and surged from $1.068 at the start of the week to roughly $1.168.

The UK government's aim to reduce taxes while encouraging economic progress has failed. After markets deemed the government's new economic policy unsuitable, the Bank of England (BOE) was compelled to interfere.The BOE indicated that it would temporarily purchase long-term UK government bonds (gilts) to restore market functioning. This instant reaction boosted the British pound.

This week, S&P Global will publish the final September Manufacturing Purchasing Managers' Index estimates for the EU and the US. The EU will release its respective August Retail Sales figures, while the US will end the week by releasing the September non-farm payrolls report. The country is predicted to have gained 250K new jobs this month, while the unemployment rate is expected to remain unchanged at 3.7%.

Because there will be no high-impact data releases from the UK this week, traders will pay careful attention to political headlines and movements in the UK gilt market.

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Commodities

Last week saw an upward trend in gold prices, with it starting the week at $1,643 and ending at around $1,663. The gain in XAU/USD was attributed to the drop in global bond rates.

The BoE’s announcement to temporarily purchase long-term government bonds resulted in the 10-year US T-bond yield falling by more than 5% as the 10-year UK gilt yield fell by 10%, allowing the inversely-correlated gold to gain positive momentum.

This week, market players will carefully watch global bond markets. The UK gilt market appears to have steadied following the BoE's intervention. But traders may lose confidence rapidly if the UK government fails to address worries about the economy being pushed into an unsustainable debt path.

On the US side, non-farm payrolls (NFP) are due this week, and traders may perceive weaker-than-expected NFP growth as an excuse to sell the US dollar, opening the door for positive activity in XAU/USD ahead of the weekend. On the other hand, traders may aim to raise their long positions in the US dollar if the NFP rises quicker than expected.

Meanwhile, oil was on track for its first weekly increase in 5 weeks as traders anticipate this week's Organization of the Petroleum Exporting Countries (OPEC+) meeting, which might result in a production cutback plan to compensate for a weakening global economy.

Experts expect a reduction in output since increasing interest rates and worries of a worldwide economic recession have impacted oil prices.

Cryptocurrencies

Over the last week, cryptocurrency values remained relatively unchanged, with the leading tokens posting small increases and losses.

As of Sunday, 2 October 2022, Bitcoin was trading around $19,230 after reaching its high on Friday, surpassing the $20,000 mark. Ethereum, on the other hand, was trading just around the $1,300 mark.

The highlight of last week was Elon Musk's texts, which were revealed ahead of his deposition. In these texts he suggested transferring Twitter (TWTR) to the blockchain, paying for it, integrating Dogecoin, and partnering with Sam Bankman-Fried of cryptocurrency exchange FTX, who was eager to throw $5 billion into the Twitter offer.

In other news, a funding round of $80 million has been raised by Bitcoin payments company Strike. Strike plans to introduce new products and establish partnerships to expand its customer base to include large financial institutions and businesses.

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US stock markets

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Stocks fell for the third week in a row due to turmoil in the UK financial markets and signals that the Federal Reserve (Fed) still has a long way to go in its attempts to contain inflation.

Even as the Fed tries to control inflation, a monthly inflation index used by the Fed to measure price movements has risen faster than expected.

According to the Personal Consumption Expenditures price index, excluding food and energy, consumer prices grew by 4.9% year on year (YoY) in August, up from 4.7% in the previous month.

In other news, Nike's earnings fell by 12.8% on Friday, 30 September 2022, after reporting a massive inventory growth (+44% YoY) in fiscal quarter 1 and warned of sustained gross margin pressure in fiscal quarter 2.

Energy (+1.8%) was the only sector to complete the week with a gain.

The monthly US labour market data for September is coming out this week on Friday, 7 October 2022. The economy added 315,000 new jobs in August, down from 526,000 in July, while the unemployment rate increased from 3.5% to 3.7%.

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