Finance

Fireworks across global financial markets as macro picture dominates


Plenty to catch up on this week if you’ve taken the long weekend.

Friday’s fireworks on financial markets – especially bonds and currencies – drove another day of falls to cap a brutal week for investors.

The surging interest rates and foreign currency turmoil heightened fears of a global recession and this in turn once again undermined equities and sent commodity prices tumbling – all of which will make today a tough session for the ASX.

In fact, Friday probably marked the start of the capitulation phase of financial markets, especially in the US, UK and much of Europe.

A majority of equity investors have now adopted the view that a hard landing scenario is inevitable and their focus is on the timing, magnitude, and duration of a potential recession and investment strategies for that outlook,”

On Friday, the Dow Jones Industrial Average tumbled 1.62 per cent. The S&P 500 slid 1.72 per cent while the Nasdaq Composite dropped 1.8 per cent. The major averages capped their fifth negative week in six, with the Dow giving up 4 per cent. The S&P shed 4.65 per cent and the Nasdaq just over 5.07 per cent – many of the US benchmarks touched bear market territory.

Friday’s fall marked the fourth negative session in a row for stocks, as the Fed on Wednesday enacted another super-sized rate hike of 75 basis points and indicated it would do another at its November meeting. 

Suddenly market worries about currency values have joined rising inflation in making a comeback as the topic of the day in a re-run of what was in vogue in financial markets the 70s, 80s and 90s.

The British pound hit a three-decade low against the US dollar after a new UK economic plan that included a slew of tax cuts rattled markets that are fearing inflation above all right now. UK consumer confidence data hit its weakest level on record.

Across the sectors – Stocks positioned to suffer the most in a recession led the day’s losses with the S&P 500′s consumer discretionary sector falling 2.3 per cent and down almost 7 per cent for the week. Growth stocks, including big technology names Apple, Amazon, Microsoft and Meta Platforms fell on Friday.

Coming Q3 earnings season is also a big focus, especially the degree to which estimates may still need to come down to reflect deteriorating macro backdrop.

Oil prices plunged about 5 per cent to an eight-month low on Friday as the US dollar hit its strongest level in more than two decades The energy sector slumped close to 9 per cent for the week and down 6.75 per cent on the day.

It seems that the macro picture is drowning equities markets at the moment as equity managers scramble to buy put option downside protection as demand and option premium increases rapidly

Purchases of put option contracts on stocks and exchange traded funds have surged, with big money managers spending $34.3bn on the options in the four weeks to September 23 The total was the largest on record in data going back to 2009.

Currencies

Dollar index was up 1.5 per cent and rose more than 2.5 per cent this week – one Australian dollar at fell heavily buying 65.21 US cents.

Commodities

Rising interest rates, the soaring US dollar and renewed recession worries sent commodities prices lower on Friday ending a week that saw downward pressure on oil, metals and gold and precious metals, along with agriculture commodities

Iron ore futures are pointing to a 1.1 per cent fall.

Gold lost $25.50 or 1.5 per cent to US$1656 an ounce.

Silver was down $0.71 or 3.6 per cent to US$18.91 an ounce.

Copper lost $12.80 or 3.7 per cent to US$334.30 a pound.

Oil lost $4.75 or 5.7 per cent to US$78.74 a barrel.

Futures

The SPI futures are pointing to a 1.3 per cent fall.

Inflation takes centre stage in Australia this Wednesday with the new monthly indicator to be released by the Australian Bureau of Statistics which will mesh with the more comprehensive quarterly Consumer Price Index.

Figures around the globe

Across the Atlantic, European markets closed lower. Paris dropped 2.3 per cent, Frankfurt lost almost 2 per cent while London’s FTSE closed 2 per cent lower.

In Asian markets, Tokyo’s Nikkei was closed, Hong Kong’s Hang Seng lost 1.2 per cent and China’s Shanghai Composite closed 0.7 per cent lower.

On Friday, the Australian sharemarket lost 1.9 per cent to close at 6574.

Ex-dividends

Imdex (ASX:IMD) is paying 1.9 cents fully franked

Dividends payable

Excelsior Capital (ASX:ECL)

IPO

There is one company set to make its debut on the ASX today. Keep an eye out for Atlantic Lithium (ASX:A11) after raising $13,253,000 at 58 cents per share.

Sources: Bloomberg, FactSet, IRESS, TradingView, UBS, Bourse Data, Trading Economics, CoinMarketCap.

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