The U.S. Federal Reserve (Fed) raised interest rates by a further 75 basis points to the 3.75%-4% range on Wednesday, its fourth consecutive hike this year. During the press conference, Fed Chair Jerome Powell suggested no plans of a pause in hikes any time soon but rather that the size of future hikes would likely be in smaller increments. The Fed’s next meeting is scheduled on the 14th December 2022.
The US labor market continued to show resilience in October, as employers added 261 000 jobs on a seasonally adjusted basis according to data released on Friday by the Bureau of Labor Statistics. The gain was lower than the 315 000 jobs recorded in September, while the unemployment rate ticked up to 3.7% from 3.5% a month earlier.
The U.S. midterm election is next week Tuesday with Republicans’ well positioned to regain control of the House of Representatives and possibly the Senate as more and more voters identify the economy as their top priority.
U.S. equities ended the week lower, with the benchmark S&P 500 falling -3.35%, the Dow Jones dropping -1.40% and the tech-heavy Nasdaq ending -5.67% lower.
Conversely, shares in Europe rose for the week as investor sentiment was buoyed by central bank signals that the pace of interest rate increases may be slowed. Both the Euro Stoxx 50 (+2.08%) and UK’s FTSE 100 (+4.07%) indices ending strongly positive for the week.
The second round of the presidential election was held in Brazil last Sunday, with former president Luiz Inácio Lula da Silva narrowly beating incumbent President Jair Bolsonaro with 50.9% of the vote to the incumbent’s 49.1%. Lula won his first presidential election in 2002, serving two terms and leaving office in 2010. In 2017 he was implicated in a vast corruption scheme and sentenced to nearly 10 years in prison. In 2021, Brazil’s Supreme Court overruled Lula’s conviction, clearing him to run for re-election against Bolsonaro.
On Thursday the Bank of England (BoE) also raised its benchmark interest rate by 75bps to 3%. The hike matched moves made by the Fed and European Central Bank. The BoE’s Monetary Policy Committee noted that its updated projections for growth and inflation indicate a “very challenging” outlook for the U.K. economy.
In Asia, the Hang Seng Index secured a weekly gain of 8.97%, bouncing back from the 13-year lows hit in previous weeks. The Shanghai Composite Index (+5.31%) also recorded a strong gain for the week amid speculation that authorities in China are preparing for a gradual relaxation of its zero-tolerance COVID policy. The Chinese government is yet to announce any official policy changes.
Market Moves of the Week:
South African (SA) factory activity improved in October according to the Absa Purchasing Manager Index (PMI). The seasonally adjusted PMI improved from 48.2 index points in September to 50 (the expansion level) in October, recent challenges including rolling power cuts, faltering global demand and the Transnet strike prevented a stronger recovery. SA’s trade data for September rebounded strongly from a R2 billion deficit in August to a surplus of R23 billion in September. The monthly improvement was driven by a rebound in exports and a moderation in imports.
Moody’s Investors Service raised its outlook on Eskom Holdings SOC Ltd.’s debt ratings to positive for the first time since 2007. This was reported after the announcement made by South African Finance Minister Enoch Godongwana indicating that government planned to take over a considerable portion of Eskom’s debt.
Miners pushed the JSE all-share index 5% higher on Friday, with the benchmark index ending the week 4.40% in the green. The resources sector led the gains (+6.39%) supported by several reports that China was preparing to retreat from its zero-Covid policies, followed by industrials (+6.21%) and then financials (+0.51%), while the SA Listed property sector ended marginally lower (-1.04%) over the week. The rand also rallied on Friday, strengthening to end the week at R17.90/$ after weakening to above R18.40/$ on Thursday.
Chart of the Week:
The rate increase comes as recent inflation readings show prices remain near 40-year highs. A historically tight jobs market in which there are nearly two openings for every unemployed worker is pushing up wages, a trend the Fed is seeking to head off as it tightens money supply.
Investor anxiety has been heightened recently by the war in Ukraine and impending rate rises by the Federal Reserve. As such, we advise investors to maintain a calm stance during the crisis, diversify, and maintain exposure to long-term themes. Investors need to look beyond near-term news and gain exposure to industries benefiting from longer-term growth trends.