August 12, 2022

Market Wrap

The week ended?August 12, 2022

Equity investors welcomed the first signs of moderating inflation in the U.S.; stocks rallied, with the three major indices gaining circa 3%. This was the fourth consecutive week of positive gains for the NASDAQ and S&P500. The CBOE Volatility Index (VIX), has subsided over recent weeks returning to levels around its long-term average of 20, potentially indicating market complacency.

Global markets noted broad-based gains however didn't feel quite the same level of exuberance as the U.S. European shares rose as expectations of more aggressive rate hikes eased, while a better than anticipated GDP release in the U.K. pushed the FTSE higher. In Australia, the ASX200 improved slightly, adding 0.24% over the week.

Overall moves in U.S. treasuries were relatively subdued last week, with yields moving slightly higher across the curve. The bond market appears divided on conflicting U.S. economic data and future interest rate moves, with the swap market near spilt on the Federal reserve's next move, debating a 50 vs 75bps hike. The next meeting isn't until September 20, with several important data releases in the interim.

Australian government bonds were a touch livelier, with a slight steepening in the yield curve. The 2-year yield climbed 12bps to 2.91%, while the 10-year moved 17bps higher to 3.39%.?

Corporate spreads continue to tighten after considerable widening in July. The Australian iTraxx dipped below 100 for the first time in months, closing at 98.15 on Friday.

News and Data

Australia

No significant news to report.

United States

In a surprise to many, July inflation was unchanged month-on-month (MoM). The annual headline inflation rate eased to 8.5%, from 9.1% in June, well below the consensus of 8.7%. The decline in oil prices was the most significant contributing factor to the fall in the headline figure.

The producer price index, a gauge of the prices received for final demand products, decreased 0.5% in July, the first monthly decrease since April 2020. The annual demand rose to 9.8%, the lowest annual increase since October 2021. When removing food, energy and trade services, PPI increased 0.2% in July, less than the expected 0.4% gain while core PPI rose 5.8% from a year ago.

Global

UK GDP shrank by 0.1% quarter-on-quarter in Q2, less than the 0.3% contraction expected by analysts.

The Bank of England (BOE) fired warning shots, issuing a grim outlook for the U.K. economy and now expects it will enter a recession by Q4 2022. The BOE attributed gas prices to a significant activity deterioration across Europe and the U.K.

?Another unwanted headache for the Eurozone has been months of drought, severely affecting agriculture and energy production. There were reports last week that the Rhine River is borderline unnavigable due to shallow water levels, threatening trade along one of the area's key transport channels and impacting the popular tourism cruising route.

The Week Ahead

Key Events

• RBA Meeting Minutes (August)
• Australian Labour Force Data (July)
• U.S. Industrial Production
• U.S. Retail Sales
• U.S. Housing Starts
• U.S. FOMC meeting minutes

Bond Offers

We have a variety of bonds being bid and offered, please get in touch with a BGC fixed income representative if you have any interest or would like to know more.

Market Data

Visit https://www.fixedincomesolutions.com for more information.

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