Macro Update for the Week 24/10/2022 – 28/10/2022Oct 24, 2022

Is the sell-off peaking or will the crash eventually take place, dragging the markets down?

Some investors believe government bond yields are near their peak, even as markets continue to expect the Federal Reserve to be more “aggressive” and try to tame the worst inflation in decades. The fall in bonds has intensified in recent days as yields on US Treasuries – which move inversely to prices – hit their highest levels since the 2008 global financial crisis on concerns that the Fed will need to raise interest rates. interest rates more aggressively to reduce consumer prices.

Meanwhile, Fed Funds futures late on Thursday were pricing US interest rates peaking at 5% in May next year, up from bets this month that saw the rate at 4.4% by then.

Benchmark 10-year yields stood at 4.23%, while two-year yields stood at 4.61%, presenting a more attractive picture for income-seeking investors than at the start of the year, when yields were at 1.5% and 0.7%, respectively.

Some investors are more hesitant to signal a peak, citing the Fed’s sole focus on reducing consumer prices, which have proven far more persistent than many expected this year. With inflation so high and rising, it would be a mistake to assume that central banks will turn to ease if anything breaks. Depending on where they are in the tightening cycle, they might not even pause. Persistent labor shortages, broken supply chains, and other long-term changes in the global economy are likely to keep inflation high.

Last week S&P 500 gained +4,74%, Dow Jones Industrial +5,07%, Nasdaq +5,78%, Russell 2000 +3,60%, and Dax40 +2,36%.

The Economic Calendar of the week (24/10 – 28/10) has very interesting readings, such as German Manufacturing PMI, UK Manufacturing PMI, US Manufacturing PMI, and Eurozone Manufacturing PMI for October, German Ifo Business Climate for October,  US Consumer Confidence for October, China Industrial Production for September, China GDP for Q3, China Trade Balance for September, US New Home Sales for  September, US Crude Oil Inventories weekly based, German Consumer Climate for November, Eurozone Interest Rate Decision, US GDP for Q3, U.S Initial Jobless Claims (weekly released), Japan Interest Rate Decision,  France GDP, German GDP for Q3, US PCE for September, US Pending Home Sales for September, including the speaking of Mrs. Lagarde and Mr. Powel.  

by Stavros Chanidis

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