Financial Markets’ Weekly Recap October 31 – November 4

Significant events dominated price action across global financial markets last week, including Fed’s rate decision and US NFP data, namely the most important events of the month

FOMC Decision, US Rate Hike

The Fed raised interest rates by 75 points last week, bringing the accumulative key rate to 4.00%, after raising interest rates by the same rate for the fourth meeting in a streak. Fed Chairman Jerome Powell’s statements were loaded with phrases that reflected a dovish stance in the upcoming FOMC meeting, which shed light on an approach within the Fed to reduce the pace of interest rate hikes, this kind of dovishness negatively impacted the US dollar.


Wednesday’s interest hike by the Fed indicated that there is a significant improvement in labour market conditions, which constitutes the source of utmost worries for the monetary policymakers, who want to rein in job growth and wage growth to counter inflationary pressures.

The Fed also confirmed that it is taking measures that will ensure that sufficiently restrictive levels of growth are adopted so that hot inflation could be brought down and kept under control, which reflects that any improvement in the US economic activity will be the opposite of the direction desired by the central bank. On the other hand, the yield curve is still inverted highlighting grounds for persisting fears that the US economy may fall in growth slowdown and eventually in a recession.

The Fed also confirmed that it will maintain the pace of adjusting the budget statements and continue to follow the schedule announced last May with regard to reselling the assets that the central bank recently purchased, which reflects that there will be no increase in efforts aimed at reducing inflation at the level of asset purchases and that selling will continue at the volumes and speeds it was before the October meeting.


Powell said, in the press conference that took place after the announcement of the rate hike last Wednesday: “It may be a good time to slow down the pace of raising interest rates at the next meeting or the next meeting.”

Powell pointed out that the central bank was not able to identify the time when inflation is declining, suggesting that the monetary authorities do not have “sufficient data on how quickly the interest rate hike will harm the economy amid the data of the modern economy.”

“If we over-tighten, we may use our tools to support the economy, but it is still too early to talk about stopping the rate hike,” he said. We still have a long way to go.”

Key Jobs Data, NFP

On Friday, the last day of the trading week, US employment data came out to shed light on an improvement that exceeded market expectations in job growth while pointing to a deterioration in wage growth and the unemployment rate in the US, which indicates a general decline in labor market conditions.

The change in US non-farm sector employment rose to 261 thousand jobs in October, compared to the increase recorded in the previous month, which recorded 315,000 jobs. Despite the rise, which came less than the previous reading, job growth rose compared to expectations that indicated only 200,000 jobs.

Despite the reading’s positive job growth, the annual reading in October rose less than the previous reading to settle at 4.7%, compared to the previous month’s reading, which rose by 5.00%, which is in line with market expectations.

The unemployment rate also rose to 3.7%, compared to the previous reading of 3.5%, which exceeded market expectations, which indicated 3.6%.

The decline in wage growth and the rise in the unemployment rate is compatible with the future course that the Fed expects of the economy, so the deterioration of these two indicators may be one of the factors that push the Fed to slow the pace of raising interest rates at the next December meeting, which negatively affected the movement of the US dollar price.

USD Performance

Adding to the weak US dollar, US employment data came in the Fed’s preferred direction, raising expectations that the central bank will have plenty of time, making it wiser to raise rates.

The dollar index fell to 110.75 points, compared to the last weekly closing at 111.30 points. The index rose to its highest-level last week at 112.99 points, compared to the lowest levels recorded in the week ending on November 4 at 110.72.

Despite noting the possibility of slowing down rate raising next December, the Fed confirmed that it is continuing to raise interest rates, and the expected effect of raising the Federal Reserve continued by 75% for the fourth consecutive meeting, which pushed US stocks to weekly losses. Borrowing cost reduces the attractiveness of Wall Street stocks to investors.

US Stocks

The Dow Jones Industrial Average declined by 4.00% at the end of the last trading week compared to the figures recorded at the end of the previous week. The Standard & Poor’s 500 fell by about 3.3%, with Nasdaq Heavy Technology shedding 5.6%.

Gold

Gold benefited from the dollar fluctuations to record weekly gains at the end of the trading week (October 31 to November 4), upon the usual inverse correlation p between the US currency and the precious metal.

And gold futures fell to 1680 dollars per ounce, compared to the last weekly closing, which recorded 1644 dollars per ounce. Gold fell to the lowest level
Gold fell to its lowest level last week at 1616 dollars, compared to the lowest levels recorded at 1682 dollars.

US Treasury Yields

rose on a weekly basis after they made the best use of the escalating expectations of a Fed rate hike after Jerome Powell emphasized that “it is still too early to determine a time to stop raising interest rates” by the Fed, statements he made last Wednesday and supported the trend. Bullish yields on this type of US sovereign bond.

The 10-year US Treasury yield rose to 4.170% last Friday, compared to last week’s close of 4.025%.

As for the European shared Currency, the euro fell due to a Russian escalation in Ukraine and an increase in Russian bombing of Ukrainian infrastructure, which led to a negative impact on the single European currency, which suffered weekly losses.

On the sterling front, despite the Bank of England raising interest rates by 75 basis points to reach the base rate to 3.00%, which was expected to take the sterling to higher levels.

However, the sterling lost more than 2.00% of its value last week due to the warnings issued by the BMC England interest statement regarding the outlook for the economy. Despite the rate hike, the statement emphasized that the British economy has already entered a recession and that UK growth may remain weak for some time.

The GBP/USD fell to 1.1372 compared to the last week’s close, which recorded 1.1637. The pair rose to the highest levels last week at 1.1613 versus the lowest recorded at 1.1142.

Twitter

The week witnessed some reports of the layoffs of thousands of Twitter employees after US billionaire Elon Musk completed the purchase agreement of the company and took over as CEO.

Elon Musk, Twitter’s new owner, blamed “groups of activists who put pressure on advertisers” for the company’s “significant drop in revenue”, as the company cut many jobs in an effort to save operating expenses.

An email sent to Twitter employees on Friday said large numbers of job cuts were “unfortunately in order to ensure the company’s continued success.”

Oil

The US crude oil (WTI) climbed sharply following the release of US employment data, which exceeded estimates, while the Unemployment Rate shows easing signs in the labor market as the Federal Reserve expects. At the time of writing, WTI exchanges hands at $91.70 per barrel after hitting a three-week high at $92.55.

The Week Ahead

Important companies will announce their earnings reports for the third quarter of 2022 next week, led by Walt Disney, AstraZeneca, Piontech, and Norwegian Cruise Line.

US consumer price inflation readings will also appear next week, amid expectations that the monthly consumer price reading in October will rise by 0.7% in October compared to the reading issued last September with 0.4%.

But expectations also indicate the possibility of a decline in annual inflation in the United States last October by 8.00% compared to the reading recorded in the same month last year, which indicated an increase of 8.2%.

The UK GDP reading will also be released next Friday to shed light on the performance of British growth in the third quarter of 2022.