Weekly Market Commentary – 12/9/2022
-Darren Leavitt, CFA
Markets gave back gains inked over the last couple of weeks as investors pulled off risk in front of the upcoming Federal Reserve Open Market Committee meeting. The market expects the Fed to increase its policy rate by 50 basis points on December 14th but will likely focus on the Federal Reserve’s Summary of Economic Conditions report for clues on terminal rate projections. Of note, Australia’s and India’s central bank increased their policy rates this week. The European Central Bank is also expected to raise its policy rate by 50 basis points at their December 15th meeting.
Additional announcements of relaxed policies on testing and lockdown measures in China continued to bolster sentiment of a reopening and its effects on the global economy. Gaming stocks exposed to Macau were well-bid this week on the prospect of reopening. The commodity market also took notice as estimates of copper prices and other industIARl metals increased on the possibility of a ramp-up in Chinese demand. Interestingly, Oil had a tough week, selling off more than 10% even as Chinese delegates met with Saudi officials to solidify relations.
A stronger-than-expected ISM Services number, along with a hotter Producer Price Index figure, tempered investor’s optimism of a cooler Consumer Price Index print scheduled to be released the day before the Fed’s rate decision. ISM Services data showed the 30th month of expansion for the services sector of the economy. The reading came in at 56.2, well above the estimate of 52.5, and catalyzed selling in the equity and bond markets. The headline PPI figure came in at 0.3% versus the consensus estimate of 0.2%. The Core number increased by 0.4%, above the 0.2% expectation. On a year-over-year basis, PPI rose by 7.4%, down from October’s 8.1%. Similarly, the year-over-year core number fell to 6.2% from 6.8% in October.
The S&P 500 fell 3.7%, the Dow lost 2.77%, the NASDAQ gave back 4%, and the Russell 2000 shed 2.37%. US Treasuries sold off across the curve as the 2-10 spread inverted to a level not seen since the 1980s. The 2-year yield increased by five basis points to 4.34%, while the 10-year yield increased by six basis points to 3.57%.
As mentioned before, Oil prices tumbled 10.8% this week despite multiple factors that should have positively affected prices. The Price Cap of Russian oil was met with Russia saying they would curtail supply. China officials met with Saudi officials to discuss their oil agreements. The Keystone pipeline was closed due to an oil spill. A weaker US dollar is generally a tailwind for oil as well. A critical technical level of $72 to $74 was breached and may portend more weakness in the coming weeks. Gold prices were little changed, gaining $1.90 to close at 1811 an Oz. Copper prices increased a penny to $3.86 an Lb.
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