Topics Covered
- WORLD MARKET NEWS
- 1. An $83 billion investor stampede shows the scale of Europe’s woes
- Oil prices surge 4% on supply cut threats, still set for a weekly drop
- Gold gains as dollar dip staves off some pressure from rate hike prospects
- Stocks rise as tech, growth shares lead; the 2-year US yields at 14-year highs
WORLD MARKET NEWS
1. An $83 billion investor stampede shows the scale of Europe's woes
Europe’s woes have grown particularly acute in recent months as the region stares down the threat of a recession just as its central bank embarks on an aggressive campaign to tame inflation
A looming recession that could last longer than any experienced by Americans, war, and winter of energy restrictions. A suddenly hawkish ECB, too, oh yeah. Nobody knows how Europe will get out from under its pile of problems, and investors aren’t waiting around to find out.
According to figures cited by Deutsche Bank AG from EPFR Global, money managers pulled $3.4 billion from European stock funds in the week ending September 7, bringing the six-month total of outflows to $83 billion. Amundi SA, the biggest asset manager in the area, and BlackRock are two of those leaving. The year-end expectations for the Stoxx 600 and Euro Stoxx 50, respectively, were drastically reduced by analysts at Bank of America Corp. and JPMorgan Chase & Co.
Europe’s problems have gotten worse recently as the continent faces the possibility of a recession and its central bank launches an aggressive battle to control inflation. An energy crisis that could result in rationing this winter is being exacerbated by Russia’s weaponization of gas supply to the West.
It’s already causing financially constrained governments—some of which have a debt to GDP ratios of about 150%—to go deeper into their budgets in order to find hundreds of billions of dollars to pay for suggested price ceilings. The common currency continues to plunge to levels against the dollar that have not been seen in twenty years.
Given the oil crisis, “we’ve anticipated a recession in Europe for months, but we don’t think equities have fully priced this in,” said Wei Li, BlackRock’s global chief investment strategist based in London.
In fact, the MSCI World Index and the US benchmark are outperformed by Europe’s primary stock index in 2022, which benefits from a competitive export environment and a strong second-quarter results season.
Oil prices surge 4% on supply cut threats, still set for weekly drop
Reuters: NEW YORK On Friday, oil prices increased by around 4%, helped by actual and threatened supply cutbacks. However, futures showed a second weekly fall as the prospect of demand was hampered by aggressive interest rate hikes and China’s COVID-19 limitations.
A minor reduction in OPEC+ oil output plans revealed this week also helped to maintain prices. Russian President Vladimir Putin has threatened to restrict oil and gas supplies to Europe if price caps are implemented.
A barrel of Brent crude increased by $3.69, or 4.1%, to close at $92.84. The U.S. To reach a price of $86.79 per barrel, West Texas Intermediate (WTI) crude increased by $3.25, or 3.9%.
According to Stephen Brennock of oil broker PVM, “the West will have to deal with the possibility of losing Russian energy supplies and rising oil prices over the next months.”
Brent is down significantly from a rise in March close to its all-time high of $147 when Russia invaded Ukraine, pressured by concerns about a recession and demand.
In the wake of the invasion, the Group of Seven is looking for methods to restrict Russia’s significant oil export earnings. Russian oil should be subject to a price cap set at fair market value less any risk premium brought on by Moscow’s invasion of Ukraine, a U.S. official said. An official from the Treasury Department informed reporters on Friday.
Despite the recovery on Friday, both crude benchmarks were still expected to decline for the week, with Brent down roughly 0.2% for the week after briefly reaching its lowest level since January. WTI reported a 0.1% weekly drop.
According to Fed Governor Christopher Waller on Friday, if the US Federal Reserve can keep the unemployment rate at 5%, it can be aggressive in bringing down inflation, but after that, tradeoffs will become apparent.
While the economy “can take a blow,” the Fed should be aggressive with rate hikes, he said.
The White House is not currently exploring any releases from the U.S. Strategic Petroleum Reserve (SPR) beyond the 180 million barrels that President Joe Biden declared months ago, according to a U.S. Department of Energy official. The administration was debating whether or not to carry out additional SPR releases, Energy Secretary Jennifer Granholm earlier told Reuters.
The White House is delaying yet another SPR release, according to Price Futures Group analyst Phil Flynn. Looks like the market is no longer experiencing many of its prior worries.
According to energy services company Baker Hughes Co., the number of U.S. oil rigs dropped by five this week to 591, the lowest number since mid-June, as output growth has stalled despite relatively high energy prices.
Prices have also been impacted by the unexpected 75 basis point rate increase by the European Central Bank this week and additional COVID-19 lockdowns in China.
On Thursday, the majority of Chengdu’s more than 21 million residents were placed under lockdown, and authorities in other parts of China advised millions more people to avoid traveling over the impending holidays.
In the week ending September 6, the money managers reduced their net long positions in U.S. crude futures and options by 3,274 contracts, to 165,158. According to the Commodity Futures Trading Commission (CFTC),
(Editing by David Gregorio and Alistair Bell; reporting by Stephanie Kelly in New York; additional reporting by Alex Lawler in London, Sonali Paul in Melbourne, and Jeslyn Leah in Singapore)
Gold gains as dollar dip staves off some pressure from rate hike prospects
By 1:55 p.m., spot gold increased 0.5% to $1,716.30 per ounce. ET (1755 GMT), having earlier in the day reached its highest level since August 30. U.S. gold futures ended the day at $1,728.6 up 0.5%.
Gold increased on Friday as the possibility of further interest rate hikes seemed to be temporarily alleviated by the dollar’s decline.
By 1:55 p.m., spot gold increased 0.5% to $1,716.30 per ounce. ET (1755 GMT), having earlier in the day reached its highest level since August 30. U.S. gold futures ended the day at $1,728.6, up 0.5%.
The price of gold was expected to increase 0.3% for the week, marking its first weekly increase in four.
“Overnight, the U.S. dollar index significantly fell, which helped the gold and silver markets. Seeing some short-covering as well as the weekend approaches in the futures markets “Jim Wyckoff, a senior analyst at Kitco Metals, made a statement.
Dollar-priced bullion is now more affordable for foreign customers because the dollar has fallen to a more than one-week low against its competitors.
The decline in exchange-traded funds (ETFs) in the gold market and the weakening trading volumes on U.S. futures markets, however, indicate that the upward movement is unlikely to be sustained, according to independent analyst Ross Norman. [GOL/ETF]
Following recent hawkish remarks from Fed Chair Jerome Powell that solidified expectations of a significant rate hike, investors are now anticipating the release of August U.S. inflation data early next week.
According to Edward Moya, senior analyst at OANDA, “if consumer prices come in hotter than expected, gold might see selling pressure target the $1,680 level” and a sharp easing of pricing pressures might only offer moderate support for gold.
The opportunity cost of owning non-yielding bullion rises as interest rates rise.
This week, despite lower prices, demand for actual gold in some Asian centers remained strong. [GOL/AS]
The price of silver increased by 1.2% to $18.79 an ounce, indicating a weekly gain.
Palladium increased 2% to $2,182.18 an ounce and was on track to have its best week since July.
On track for its highest weekly increase since early June, platinum edged up 0.1% to $879.83 per ounce.
Stocks rise as tech, growth shares lead; the 2-year US yields at 14-year highs
The three major Wall Street indexes all finished the week up at least 1%, marking the first weekly rise in the previous four weeks.
Reuters: NEW YORK On Friday, global markets rose, led by technology and growth firms, and interest-rate-sensitive two-year U.S. Treasury rates reached levels not seen in 14 years as investors absorbed the idea that additional interest rate increases were required.
A day after the European Central Bank raised interest rates by a record 75 basis points on Thursday, signaling additional increases to combat inflation, the dollar dropped to a level not seen in more than one week, while the euro soared back over parity to a three-week high against the U.S. currency.
The three major Wall Street indexes all finished the week up at least 1%, marking the first weekly rise in the previous four weeks.
According to Jake Dollarhide, CEO of Longbow Asset Management in Tulsa, Oklahoma, “the market has finally accepted the projected 75-basis-point hike from the (Federal Reserve) this month after three weeks of a temper tantrum.”
According to Dollarhide, “people intellectually realize we have to change inflation, and that’s being done… and rates are still extraordinarily low.”
The Fed raising interest rates by 75 basis points this month is priced in at 87% likelihood by U.S. rate futures.
According to Fed Governor Christopher Waller, the U.S. central bank should raise rates quickly while the economy is still “capable of taking a hit.”
The remarks were made a day after Fed Chair Jerome Powell reiterated that the goal of the central bank is to address the rising pricing pressures.
Investors anticipate Tuesday’s release of significant August U.S. inflation data.
The Nasdaq Composite increased 250.18 points, or 2.11%, to 12,112.31, the S&P 500 increased 61.18 points, or 1.53%, to 4,067.36, and the Dow Jones Industrial Average increased 377.19 points, or 1.19%, to 32,151.71.
The global stock market index MSCI increased by 1.73% while the pan-European STOXX 600 index increased by 1.52%.
The yield curve for Treasury bonds was further inverted. Some people interpret the inversion as a warning that a recession is likely to occur within the next one to two years. The highest two-year yield since November 2007 was 3.575%.
The most recent benchmark 10-year note yield was 3.321%. They are maintaining below the 11-year high of 3.498% hit on June 14 while having increased from a four-month low of 2.516% on August 2.
Germany’s two-year bond yield had reached a two-day peak not seen since 2011.
In terms of currencies, the dollar index retreated following recent strong advances, falling as low as 108.35 and ending down 0.5% at 108.96. Also posting its first weekly decrease in four weeks was the dollar index.
According to Greg Anderson, global head of FX strategy at BMO Capital Markets in New York, “markets are getting a bit apprehensive about levels, really historic levels, so the market chose not to push the dollar’s strength at this point and lightened up bets.”
This week, the dollar index surged to a more than 20-year high while the greenback reached 24-year highs against the yen and sterling.
Up to 1.2%, the euro increased to a three-week high of $1.0114. At $1.0045, it was last up 0.5%.
Sterling last traded at $1.1588 in other currencies, up 0.77% on the day.
After the pound hit a 35-year low against the dollar earlier this week, the death of Queen Elizabeth on Thursday has added to the uncertainty in Britain. [GBP/]
Following the passing of the queen, the Bank of England decided to postpone its decision on interest rates for a week, to September 22.
Additionally, cryptocurrencies advanced, with bitcoin rising 10.1% to $21,263.
A barrel of Brent crude increased by $3.69, or 4.1%, to close at $92.84. West Texas Intermediate (WTI) crude for the United States increased $3.25 or 3.9% to close at $86.79 per barrel.
(Additional reporting by Carolyn Cohn in London, Gertrude Chavez-Dreyfuss in New York, William Mallard in Will Dunham, and Louise Heavens in editing.)