International Communique No. 352 – 13th of September 2022


Equity indices all ended up strongly on last week’s close, with the three major US indices each putting an end to a three-week losing streak as the dollar pulled back from recent highs and many were left unfazed by the Fed’s third 75bp rate hike.

The US dollar, which peaked at the beginning of last week, subsequently fell back for three consecutive days as a result of the rate hike in Europe and a renewed appetite for risk. In the bond market, the benchmark 10-year yield ebbed to 3.32% while the 2-year yield edged up by 5bp to 3.55% – still indicative of a recession in the US. However, such a recession is not yet showing up in the various statistics measuring the country’s economic activity. Instead, the release of the Fed’s Beige Book points to solid industrial production, with capital spending and retail sales both rising. Services also continue to grow.

The ECB announced their decision to raise its benchmark policy rate by 75bp to accelerate the pace of monetary tightening. The deposit rate was thereby increased from 0 in July to 0.75%. Caught up in the inflation spike caused by the energy crisis that Europe is enduring in retaliation for sanctions against Russia, the ECB president and cohort had no choice but to follow in the footsteps of their counterparts across the Atlantic. Further increases are expected, with the aim of encouraging savings and cramping consumer spending and thereby easing the pressure on prices. With the prospect of further 75bp increases in the coming months, the euro has strengthened against the dollar to back above parity (1.01). GDP growth in Euroland has been revised downwards but remains at 3.1% for this year. It is expected to slow to 0.9% next year.

The Chinese Communist Party Congress is due to begin on 16 October to redefine the zero-covid policy and sketch out possible new support measures for the slowing economy. Inflation unexpectedly decelerated in August to 2.5%, down from 2.7% in July, giving the Chinese authorities leeway to support their economy. This slowdown in prices is mainly due to sporadic lockdowns resulting from the strict zero-covid policy, which has similarly reduced spending. This gathering could inject some zest into markets – and especially into the Chinese economy, hit by the property crisis for the past year and which is now spreading to all the country’s business sectors as well as undermining the confidence of various economic agents.

Next, all eyes will be on the economic data, especially US inflation, which is expected to ebb to 8.1%.

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