Weekly Trader

Key Themes This Week

The Week Ahead

Monetary policy was the dominant driver of markets last week, with both interest rate decisions and testimony of key central bankers, the core focus. Whilst the major global central banks now look set to hold rates steady at least in the very short term, expectations that rates will stay higher for longer served to unsettle markets. The key global equity indices ended lower on the week, led down by the tech heavy Nasdaq at -3.6% and the S&P 500 down 2.9%, this in turn marked three consecutive weekly declines for the main US benchmarks. European markets also had a challenging week with the Stoxx 600 down 1.9%. This was despite broadly supportive economic data being released during the week, including the Eurozone composite PMI data, which climbed to 47.1, representing a marked improvement on the prior month at 46.5. The equivalent PMI gauge in the US slipped modestly for September but remained firmly in expansionary territory, whilst Weekly Initial Jobless Claims came in at 201K, well below expectations and within striking distance of the lowest level in more than five decades.

 

Asian markets were also choppy last week and this has followed through to early morning trading with Chinese stocks lower on renewed concerns about the property market (Evergrande down 20% as it can’t meet qualifications for new debt) albeit Japanese
markets were firmer. Longer-dated sovereign bond yields in both the US and Europe were modestly higher on the week, following a combination of hawkish commentary from central banks and supportive economic data. US treasuries, in particular, briefly touched a 16-year high before retreating modestly on Friday. The UK bucked this trend however, with longer dated yields trending lower following a surprise decision by the BOE to put rates on hold.

 

The decision to pause following 14 consecutive rate increases was prompted by better than expected inflation data released during week. The bank noted that whilst it was not ruling out further tightening in the coming months if required, it was cautiously optimistic on the expected path of inflation from here. This news also resulted in a retracement of sterling towards its lowest level versus US$ since March of this year at $1.22. Following a strong rally since late-June, oil was marginally lower on the week, with Brent Crude settling at $93.6 as the Federal Reserve signalled it would keep borrowing costs higher for longer, which in turn was enough to offset news that Russia was set impose bans on diesel and petrol exports.

 

The aforementioned US Federal Reserve policy decision was the key focus for markets last week and whilst it held its target range unchanged as expected, the fact policymakers are now predicting less easing next year served to roil markets. The median forecast for the federal funds rate in 2024 has risen to 5.1% from 4.6%, which is expected to be restrictive enough to ensure inflation falls below 3% next year. With levels of consumer spending remaining robust and the labour market steady the Fed is more confident on the economic outlook going forward and as a result it raised its 2023 median GDP projection from 1% to 2.1%. In its latest quarterly bulletin released last week, the Central Bank of Ireland lowered 2023 economic growth forecasts measured by modified domestic demand (MDD) to 2.9% from its previous forecast of 3.7% in June. Capacity constraints in the labour and housing markets along with tighter monetary conditions were cited as reasons for the revised outlook.

 

The economic data that will be most closely watched in the week ahead includes the German IFO Expectations data out this morning, US Consumer Confidence data on Tuesday, US Durable Goods Orders on Wednesday and the preliminary September read of Eurozone CPI on Friday. The Eurozone inflation rate is expected to come in at 4.5%, whilst this is more than double the ECB’s target rate it will mark a two-year low in the price gauge.

 

Following a close-run decision to raise rates earlier this month, markets will be paying close attention to the ECB president’s testimony to the European parliament later today for any clues on the future path of interests from here. Whilst in the US, there will be intense focus on political negotiations on Capitol Hill as without the passage of a spending bill through Congress, a Government shut-down will ensue on Oct 1st. Fed Chair Jerome Powell will also hold a town hall with educators on Thursday that will also garner interest as will any developments on the UAW auto workers strike. This week’s Weekly Trader stocks are Microsoft, Cairn Homes and CRH.

Major Markets Last Week

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Opportunities This Week

CRH PLC

Closing Price €45.20

 

Monetary policy was the dominant driver of markets last week, with both interest rate decisions and testimony of key central bankers, the core focus. Whilst the major global central banks now look set to hold rates steady at least in the very short term, expectations that rates will stay higher for longer served to unsettle markets. The key global equity indices ended lower on the week, led down by the tech heavy Nasdaq at -3.6% and the S&P 500 down 2.9%, this in turn marked three consecutive weekly declines for the main US benchmarks. European markets also had a challenging week with the Stoxx 600 down 1.9%. This was despite broadly supportive economic data being released during the week, including the Eurozone composite PMI data, which climbed to 47.1, representing a marked improvement on the prior month at 46.5. The equivalent PMI gauge in the US slipped modestly for September but remained firmly in expansionary territory, whilst Weekly Initial Jobless Claims came in at 201K, well below expectations and within striking distance of the lowest level in more than five decades.

 

 

Asian markets were also choppy last week and this has followed through to early morning trading with Chinese stocks lower on renewed concerns about the property market (Evergrande down 20% as it can’t meet qualifications for new debt) albeit Japanese
markets were firmer. Longer-dated sovereign bond yields in both the US and Europe were modestly higher on the week, following a combination of hawkish commentary from central banks and supportive economic data. US treasuries, in particular, briefly touched a 16-year high before retreating modestly on Friday. The UK bucked this trend however, with longer dated yields trending lower following a surprise decision by the BOE to put rates on hold.

 

 

The decision to pause following 14 consecutive rate increases was prompted by better than expected inflation data released during week. The bank noted that whilst it was not ruling out further tightening in the coming months if required, it was cautiously optimistic on the expected path of inflation from here. This news also resulted in a retracement of sterling towards its lowest level versus US$ since March of this year at $1.22. Following a strong rally since late-June, oil was marginally lower on the week, with Brent Crude settling at $93.6 as the Federal Reserve signalled it would keep borrowing costs higher for longer, which in turn was enough to offset news that Russia was set impose bans on diesel and petrol exports.

 

 

The aforementioned US Federal Reserve policy decision was the key focus for markets last week and whilst it held its target range unchanged as expected, the fact policymakers are now predicting less easing next year served to roil markets. The median forecast for the federal funds rate in 2024 has risen to 5.1% from 4.6%, which is expected to be restrictive enough to ensure inflation falls below 3% next year. With levels of consumer spending remaining robust and the labour market steady the Fed is more confident on the economic outlook going forward and as a result it raised its 2023 median GDP projection from 1% to 2.1%. In its latest quarterly bulletin released last week, the Central Bank of Ireland lowered 2023 economic growth forecasts measured by modified domestic demand (MDD) to 2.9% from its previous forecast of 3.7% in June. Capacity constraints in the labour and housing markets along with tighter monetary conditions were cited as reasons for the revised outlook.

 

 

The economic data that will be most closely watched in the week ahead includes the German IFO Expectations data out this morning, US Consumer Confidence data on Tuesday, US Durable Goods Orders on Wednesday and the preliminary September read of Eurozone CPI on Friday. The Eurozone inflation rate is expected to come in at 4.5%, whilst this is more than double the ECB’s target rate it will mark a two-year low in the price gauge.

 

 

Following a close-run decision to raise rates earlier this month, markets will be paying close attention to the ECB president’s testimony to the European parliament later today for any clues on the future path of interests from here. Whilst in the US, there will be intense focus on political negotiations on Capitol Hill as without the passage of a spending bill through Congress, a Government shut-down will ensue on Oct 1st. Fed Chair Jerome Powell will also hold a town hall with educators on Thursday that will also garner interest as will any developments on the UAW auto workers strike. This week’s Weekly Trader stocks are Microsoft, Cairn Homes and CRH.

Weekly Trader

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Warning

Your investment can go down as well as up

Warning

Your investment can go down as well as up

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