On Monday, European stocks and US index futures rose as investors prepared to pore through a slew of quarterly earnings reports for indicators of the economy.
Disappointing Poll Of Inflation Raises New Worries
After a disappointing poll of inflation expectations raised new worries about the Federal Reserve hiking lending rates more rapidly in a slowing economy. The S&P and the technology-heavy Nasdaq fell dramatically in the last part, with the latter index falling more than 3 percent.
London’s FTSE 100 was up 0.8%, and the continental Stoxx Euro 600 rose 1%. Futures contracts following the S&P 500 on Wall Street rose by 1.2%.
In a monthly study released on Friday, the College of Michigan found that US consumers anticipate price increases of 6.1% in the next year. Up from 5.7% in September.
To combat excessive inflation, the Federal Reserve has increased interest rates by an unprecedented 0.76 % throughout three consecutive sessions. Bringing the target range to between 3% and 3.25%.
The Fed is keeping a close eye on consumer sentiment. Because rising pay expectations among workers make it more challenging to slow inflation.
Early in the week, investors were also preparing for US companies’ next wave of financial results. They would look for indications of pressure due to increased pricing and borrowing rates.
On Friday, competitors JPMorgan, Well Fargo, Morgan Stanley, and Citigroup all reported decreased earnings. On Monday, the Bank of America will disclose its quarterly statistics.
New UK inflation figures will be released on Wednesday. Analysts surveyed by Reuters anticipated a 10% increase in the index of consumer prices in September. Up from the 9.9% increase seen in August.
UK financial markets have already seen unprecedented volatility in the weeks after the “mini” Budget presentation on September 23. A reading above or below expectations might set off more market fluctuations.
On Monday, Gilts rose as new UK minister Jeremy Hunt ditched significant commitments of the government’s fiscal policies presented last month. Hunt, to reassure investors, scrapped tax cuts and shortened the duration of the government’s program to subsidize energy prices.
Gilt price increases led to a decline in 30-year rates of 0.36 percentage points to 4.35 %. At the same time, this was still much above the levels seen at around 3.75% before the announcement of Westminster’s budgetary plans by the previous minister Kwasi Kwarteng.
Less Volatility Expected
Consequently, less volatility is expected in the markets, according to Premier Miton’s portfolio manager officer Neil Birrell. However, political instability remains and has likely even intensified.
While this is encouraging news, for now, it’s tough to predict how it will play out in the future.
Despite the Bank of England, it was terminating its crisis bond-buying program. And gov. Andrew Bailey was signaling over the week that the board would aggressively hike costs to battle inflation. Gilts rallied on Monday.
The value of one Pound increased by 1.1% vs. the dollar, reaching $1.129. As a result, the UK Prime Minister Liz Truss fired Kwarteng. And scrapped a plan to reduce corporate taxes, the Pound’s value dropped by 1.5% on Friday.
Meanwhile, the value of the Japanese Yen versus the US dollar dropped to a 32-year low of 148.89. Even though US interest rates are rising, the dollar is the global reserve currency. The dollar fell by 0.1% versus its major counterparts in 2022.