Market Insights Today: Hot CPI, wild markets – Oct 13, 2022
APAC Strategy Team
Summary: The Nasdaq 100 and S&P 500 indices plunged after hot US inflation (the highest in 40-years), then markets whip sawed higher, moving in a 5% range fueled by short selling covering. That being said, the futures market is now pricing in US interest rates will peak at 4.9% next year, setting the tone for value over growth assets. APAC equities may meet a similar fate to US stocks and have a wild day of trade, however most futures are trading higher suggesting APAC will have a positive day of trade.. We cover some of the most traded instruments at Saxo this week, with buying of Crude oil Futures picking up with the OPEC and EIA still predicting demand will outpace supply in 2023. Crude oil rallied 2% overnight.
What’s happening in markets?
The Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) indices plunge after hot CPI then whip saw higher, moving in a ~5% range. Here’s what you need to know now
Core inflation (which excludes volatile food and energy items) rose to a 40-year high in September which gives the Federal Reserve reason to continue with its aggressive interest-rate hikes. The Nasdaq 100 fell over 3% and the S&P500 fell 2.35% before both major indices whipsawed higher with the Nasdaq ending up 2.3% and the S&P500 up 2.6%. Short selling covering would have played a huge role in the reason markets whipsawed higher. Institutional investors spent more than $10 billion on put contracts (insurance on downside protection) on individual stocks last week. That’s a record. And we’ve been speaking about this for some time. At Thursday’s low, a lot of those contracts would have become immediately profitable when the market fell; causing traders to cover their put positions. That being said, the futures market is now pricing in US interest rates will peak at 4.9% next year, with the Fed expected to hike by 0.75% when they next meet, which implies markets still have to price this in, and so, too investors. We also believe markets will be driven by a ‘peak hawkishness’ narrative, essential where growth assets typically continue to face pressure and value strengthen. Also recall, amid the energy crisis, there are the most rising-free cash flows in energy markets, which offer value.
Australia’s ASX200 (ASXSP200.1) may likely meet a similar fate to US equities and have a wild day of trade
What to consider?
Most traded instruments at Saxo this week
The most traded stocks this week at Saxo in Australia are Tesla, Apple, Whitehaven Coal (hit new high), Coles, and Bank of Queensland results. What’s the takeaway here? We need to reflect on the trends. Trends are your friends when it comes to making profits in markets. In the banking sector; we heard from Bank of Queensland who is forecasting house prices to drop and loan growth to slow. Coal prices are moving up and continues to be supported. And in when it comes to the most transacted upon futures, in commodities; we've seen a pick-up in buying of Crude oil Futures; with the OPEC and EIA still predicting demand will outpace supply in 2023, meaning we could expect higher oil prices into next year.
For a week-ahead look at markets – tune into our Saxo Spotlight.
For a global look at markets – tune into our Podcast.
Latest Market Insights
Q4 Outlook 2022: Winter is coming
- Winter is coming to the financial markets as central banks are tightening their grip. How spring will look is still a question.
European energy crisis: it will get worse before it gets betterThe winter in Europe will be tough, but whether the result is political chaos or sustainable, innovative solutions is still undecided.
A difficult and volatile quarter awaitsAs the year draws to an end, commodities continue to be at centre stage of the world with growth pockets political uncertainty.
The bright side: crises drive innovationThe positive spin on crises is that they come with solutions. It is worrisome that deglobalisation may be a response to this crisis.
Green transformation in China: renewable energy and beyondGoing green, China needs to span numerous energy sources to ensure stability, as every source comes with a challenge.
Asia: Intermittent solutions, but a faster renewable adoption curveAsian energy supply is being squeezed. This and the adoption of renewables may change the investment sentiment in the region.
FX: A Fed thaw needed to deliver a sustained USD turn lowerThe US Dollar can keep momentum when the Federal Reserve continues to tighten, leaving the rest to play to their drum.
Autumn can become ugly for equities and bond holders. Comfort for Dollar longsTechnical analysis suggests that equities could face a tough Q4 as could fixed income. US Dollar positions could provide some upside.
The next stock market sector to watch, with stocks going nuclearAs the world scrambles to find affordable, sustainable energy, nuclear is getting attention from politicians and investors alike.
The crypto space is getting cold when the hype disappearsCryptocurrencies face a winter of their own as retail investors and governments are asking tough questions.
Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)