Stocks were down sharply last week as the US inflation data for August surprised on the upside. The headline annual rate fell to 8.3%, but core prices rose 0.6%, double the 0.3% expected, writes Ian Slattery.
Consumer price inflation was below expectations for July, and many were expecting similar results last Tuesday when US CPI figures for August were released. As a result, the upside surprise drove stocks to their worst selloff in more than two years, with the S&P 500 falling 4.3% on the day.
U.S. retail sales figures for last month were also released on Thursday and beat expectations with a 0.3% year-on-year rise. While this is generally positive for the US economy, many investors see it as an indicator of how aggressively central banks will raise rates. This led to a massive sell-off in risky assets and markets estimated there was a 1/3 chance the Fed would raise rates by a full percentage point this month.
Given the expectation of rapid monetary tightening, the yield on the interest rate-sensitive two-year Treasury note hit 3.90% on Friday, its highest level since 2007. The benchmark 10-year yield also increased for the 7th consecutive week.
Within the Eurozone, inflation and the health of the economy continue to drive the market with the broad Eurozone index down 4.5% last week as investors worried about energy price volatility and central bank policy tightening.
In the UK, August retail sales were released on Friday, which came in well below expectations, falling 1.6%. This is the biggest drop since December 2021 and underlines an increased risk of recession within the UK economy.
The EUR/USD key rate ended the week below parity, as the safe haven status of the dollar continued to be used. The dollar’s enduring strength is partly the result of Fed policy tightening, but it’s also a function of the perceived greater resilience of the US economy relative to that of Europe.
Global equities fell last week by -4.5% in euros and -5.5% in local terms. Year-to-date, global markets are down -8.8% in euros and -19.5% in local terms. The US market, the largest in the world, fell -4.9% in euros and -5.8% in local terms.
Fixed Income and Foreign Exchange
The US 10-year rate ended at 3.45% last week. The German equivalent finished at 1.78%. The yield on Irish 10-year bonds ended at 2.36%. The euro/US dollar exchange rate finished at 1.00, while the euro/GBP finished at 0.88.
Oil ended the week at $84 a barrel and is up 27.8% year-to-date in euros. Gold ended the week at $1,663 per troy ounce and is up 3.6% year-to-date in euros. Copper ended the week at $7,869 per ton.
The week ahead
wednesday 21st September
Federal Reserve interest rate decision released.
thursday 22n/a September
Announcement of the Bank of England’s interest rate decision
Friday 23rd September
Global PMI data is released.
About: Zurich Investments
The Zurich Investments team is a long-established and highly experienced team of investment managers managing approximately €28.9 billion in investments, of which pension assets amount to €17 billion. To learn more about Zurich Life’s funds and investments, click here.
The Zurich Investments team is a long-established and highly experienced team of investment managers managing approximately €28.9 billion in investments, of which pension assets amount to €17 billion. To learn more about Zurich Life funds and investments, w: zurichlife.ie/funds,