Trail 42 — On a tear
Written by — Aashish Singh; Editor — Sylvia Lo
US inflation figures came out this week at 9.1%. Consensus was for a print of 8.8%. This is now a new 4 decade high after topping the 8.6% release last month. Equity markets had a rather muted response while the 10 year yields sold off. A factor could be value emerging in pockets after the selloff has left Nasdaq 100 Price /Earning ratio near pandemic lows. Or maybe the market is waiting to see quarterly earnings results later this month. Another factor could be that Fed officials are still leaning towards a 75 bp hike vs a 100 bp hike that was being speculated post the print. Elsewhere, in Europe, recession outlooks have grown with concerns over natural gas supplies over winter increasing. And China Housing market crisis seems to be escalating to the nest stage as borrowers are stopping to pay their mortgages.
Scorching US inflation print
US inflation roared again to a fresh four-decade high last month, likely strengthening the Federal Reserve’s resolve to aggressively raise interest rates that risks upending the economic expansion.
The consumer price index rose 9.1% from a year earlier in a broad-based advance, the largest gain since the end of 1981, Labor Department data showed Wednesday. The widely followed inflation gauge increased 1.3% from a month earlier, the most since 2005, reflecting higher gasoline, shelter and food costs.
Stocks avoid wipeout
Data that landed like a gut punch on anyone hoping inflation had receded was received with notable poise by investors. Why that happened was the subject of frantic speculation Wednesday on Wall Street.
While odds of draconian rate hikes jumped, so did shares of semiconductor producers, retailers and automakers. Tech stocks as tracked by the Nasdaq 100 Index swung almost 3% from their lows as Tesla Inc., Amazon.com Inc. and Nvidia Corp. ended firmly in the green.
Europe recession odds grow
Predictions of an impending downturn are building as the continent’s post-pandemic rebound fades and the reality of a winter energy crisis sinks in — even if fears of a full Russian cutoff don’t come to pass.
That puts the European Central Bank, which announces its rate decision on Thursday, in a tight spot. Unlike in the US, where government stimulus fueled a demand-led surge in consumer prices, inflation in the 19-member euro zone is primarily down to soaring natural gas costs — made worse by the war in Ukraine.
China housing market distress grows
A wave of disgruntled homebuyers are refusing to pay mortgages for unfinished or stalled housing projects, as debt-strapped property developers run out of cash. Payments have stopped on at least 100 projects in more than 50 cities, according to researcher China Real Estate Information Corp. Analysts believe that a drop in home values may be another driver for the refusal to meet payments. Until recently, China’s mortgages have been considered among the safest banking assets because of high down payments and collateral value.
Until next week.
Financial markets are fascinating, and I see them amalgamating the subjective and objective worlds. They are constantly evolving, follow no predetermined path and much like humans and society in general, their behaviour at most times is irrational. Yet, their day to day functioning is seemingly driven by facts and reasoning. They are filled with plenty of stories of triumph, tragedy and comedy. Every day they are thoroughly analysed and tried to make sense of. Yet, their future steps or directions cannot be predicted based on history. They follow a random walk. Therein lies their beauty.
If enjoying making sense of their randomness is as appealing to you as it is to me, each week, I briefly recap a few stories that captured my interest, with embedded source links available for those who wish to read more.
