Market Overview
Global equity markets rose marginally last week on the dollar weakening. However this proved a temporary relief. Across the board, corporate earnings estimates have been revised downwards, reflecting a weaker economic environment for global equities.
The UK saw a change in leadership with the death of Queen Elizabeth II and King Charles ascending the throne. The new Prime Minister Liz Truss revealed her energy package last week – she announced a GBP 100 billion package, which includes a price cap of GBP 2,500 on household’s annual energy bill. Truss’s energy package could weaken the UK’s fiscal position further and the BoE may take a more hawkish stance which is not positive for the UK economic scenario.
European Central Bank and Bank of Canada both raised rates by 75-basis points last week and the market expectation is that the US Fed will also announce a third consecutive 75-basis points hike next week- the meeting is scheduled on 20-21 September 2022. The swift pace of quantitative tightening could mean more volatility and slowing economic growth. Equity markets will be adversely affected. Against this backdrop, defensive stocks would be preferred with a strong case for global healthcare.
Central Bank’s QT measures are not the only headwind for equity investors – energy shortages in Europe is rearing its ugly head with the recent decision of Russia to halt flows through the Nord Stream 1 pipeline. COVID related restrictions in China may also prove to be tricky. We look ahead for some key
economic data to be released this week including the inflation numbers for the US.
Commodities, FX and Bonds
Truss’s energy package could weaken the UK’s fiscal position and the BoE may take a more hawkish stance- investors should take a more bearish view on GBP and gilts. Italian general elections are set to be held in Italy on 25th September 2022. The focus of ECB on quantitative tightening has pushed up
government bond yields in Europe with short term Euro yields reaching new highs. The strength of the Swiss Franc reflects that market participants expect the Swiss National Bank to follow the ECB with another 75-basis points increase in rates. Despite lower GDP growth figures, Swiss inflation rates are
lower than the Euro Area and bodes well for the Swiss franc.
Please find full weekly note below:
