Markets’ Weekly Recap, October 17-21

Japan’s government and central bank intervened in the currency market early Saturday to support the retreating yen, triggering a dramatic rebound against the dollar after the Japanese currency had reached a fresh 32-year low of nearly 152 against the dollar.

Finance Ministry Vice Minister Masato Kanda told reporters he would not comment on whether an intervention had taken place. The government and the Bank of Japan last stepped in to support the yen on Sept. 22, when the yen was trading just under 146 to the dollar. That had marked Japan’s first yen-buying intervention in about 24 years.

The British pound rallied back over $1.13 after Liz Truss announced she is resigning as prime minister, teeing up a short battle to replace her. The London stock market has also closed higher, while some UK bond prices have strengthened a little today, lowering the cost of long-term borrowing.

Rishi Sunak and Penny Mordaunt are seen as the front-runners, with the winner due to be named presumably on Monday. The end of Truss’s brief stay in 10 Downing Street will also end the push for Trussonomics, following the hysterical market reaction to her unfunded tax cuts paid for by higher borrowing.

Nick Timiraos’ Articles Caused Those Assets To Reverse Direction

On the US front, Fed’s policymakers are barreling toward another highly expected interest-rate rise of 75 bps at their meeting in November and are likely to debate then whether and how to signal plans to approve a smaller increase in December according to Nick Timiraos – chief economics correspondent at The Wall Street Journal.

There is a divide among FOMC members, with few officials signaling greater unease with big rate rises to fight inflation. Some Policymakers want to stop raising rates early next year to see how their moves this year are slowing the US economy and to reduce the risk of causing an unnecessarily sharp slowdown.

Most markets reacted positively to Timiraos’ article, which is evident from a good recovery in the equity markets as well as prices of gold that found the chance to leap from the $1627.03 low on October 20 to close at $1656 on Friday, forcing the safe-haven US dollar to trim a part of its intraday gains on Friday. The yield on the 10-year Treasury hit a fresh 14-year high on Friday morning, but bonds cut their losses after the WSJ’s report that some Federal Reserve officials are concerned about overtightening with rate hikes.

The yield on the 2-year Treasury retreated more than 12 basis points to 4.481%. Short-term rates are more sensitive to Fed rate hikes. The 10-year Treasury yield, which hit 4.337% at one point during the session, fell less than one basis point to 4.219%. The 30-year Treasury yield, which is key for mortgage rates, jumped 12 basis points to 4.335%. Yields and prices have an inverted relationship. One basis point is equivalent to 0.01%.

Oil, Natural Gas

The UK has turned to Cheniere Energy to secure gas supplies amid threated supplies while the demand peak season is looming next month, but inventories are lower versus last year and the five-year average. Europe finds it increasingly necessary to get prepared for a wild winter during a wild and extremely volatile year for energy markets. The continent’s fears of natural gas shortages are several and justifiable.

The remarkable development of the previous week was undoubtedly the decline of natural gas prices in Europe to after leaders came together to back urgent measures, including a price cap, to cool the energy crisis that has already overwhelmed the economy.

Benchmark natural gas futures fell 11% on Friday, posting a third straight weekly loss. The politicians asked the European Commission to propose a “temporary dynamic price corridor”.

On Thursday, oil prices rose at intraday trade after China signaled an easing of its strict Covid policy, which has impacted market sentiment in recent months. Barclays lowered on Friday its Brent Crude price forecast for this year and next due to expected slowing growth in oil demand. The UK bank is now cutting its Brent forecast by $3 per barrel for 2022 and by $5 a barrel for 2023.

Brent crude traded steadily on Monday at $91.62 per barrel and the closing price on Friday was $92.33 a barrel. Brent was on track for a weekly gain of 0.7%, while West Texas Intermediate began the week on Monday at $85.46 and closed lower on Friday at $85.05. In the United States, ahead of the midterm elections, the Biden’s administration announced on Tuesday the intention to tap oil reserve again by 15 million barrels of oil from the Strategic Petroleum Reserve in December in a bid to drive fuel prices down