Global Markets Rally On Optimism

Barry Adams
09 Sep, 2022
New York City

Stocks on Wall Street advanced and extended weekly gains after falling for three weeks in a row. 

Investors are still questioning the Fed's commitment in fighting sky-high inflation, and interest rates have lagged for nearly two years. 

Inflation has been rising for 22 months in a row and hovering near 9% but interest rates are lagging significantly near 2%. 

Moreover, the longer the Fed takes in taming inflation, longer the duration of high rates will be needed. 

Over the last two weeks, the Federal Reserve Chair Jerome Powell's forcefully reiterated central bank's commitment in fighting high inflation has left many on Wall Street unconvinced.   

In fact, the Fed is fighting on two fronts, inflation and credibility. 

Despite the Fed's hawkish rhetoric, the central bank remains weak in its fight against high inflation and high prices are seeping rapidly deeper and wider in the economy. 

Rising energy costs and food prices have spilled over in rapidly rising wages and forcing many small businesses on the brink of shut down. 

The Federal Reserve has come under heavy criticism for waking up too late in recognizing high inflation and doing too little in taming 4-decade high rapid price increases. 

The S&P 500 index gained 1.7% to 4,070.34 and the Nasdaq Composite index added 2.2% to 12,118,83.

For the week, the two popular indexes are up 3%. 

Futures of crude oil increased $2.80 to $86.36 a barrel and natural gas rose 12 cents to $8.03 a thermal unit. 

Oil prices rose after news that the U.S. President Biden's administration is not looking to release more oil from the U.S. Strategic Petroleum Reserve. 

Oil traders also reviewed Russia's threat to divert energy exports from Europe to Asia after G7 finance ministers proposed a price cap. 

The yield on 2-year Treasury notes eased to 3.56%, 10-year Treasury notes declined 3.33% and 30-year bonds edged down to 3.46%. 

 

European Markets Rally Despite Weak Economic Conditions 

Benchmark indexes in Europe extended weekly gains after rising for the second day in a row as investors looked beyond the latest rate hike and the ongoing economic slowdown. 

Trading in energy markets dominated market sentiment for stocks as European governments consider intervening in energy prices. 

Natural gas prices dropped 6% and extended weekly decline to 5% and the European Union energy committee is considering temporarily suspending power derivatives and implementing price caps. 

Brent crude oil fell for the second week in a row after the European Central Bank's aggressive rate hike and widening activity restrictions in China, the largest importer of the commodity. 

Brent crude oil traded above $92 a barrel and fell 1% in the week, the second weekly decline in a row, but rebounded from the 7-month low of $87.30. 

The DAX index added 1.4% to 13,088.21, the CAC-40 index increased 1.4% to 6,212.33, and the FTSE 100 index advanced 1.2% to 7,351.07. 

The benchmark SMI ended with a gain of 109.92 points or 1.02% at 10,900.24.

The DAX and the CAC-40 gained more than 3%, the SMI increased 1.5% and the FTSE 100 added 1% for the week. 

The euro jumped above the parity and traded at $1.004 and the British pound inched up to $1.16. 

Industrial production in France declined for the first time in three months in July. 

Industrial production fell 1.6% from June after rising 1.2% in the previous month, France's statistical agency Insee said Friday.  

Consumer prices in Norway unexpectedly eased in August but wholesale prices continued to rise, Statistics Norway said Friday. 

Consumer price inflation eased to 6.5% in August from 6.8% in July, driven by a 10.3% rise in food and non-alcoholic beverage prices. 

In a separate report, the statistics agency said wholesale prices accelerated to 77.3% in August from 73.6% in July.  

 

Tech Rally Lifts Asian Markets Higher 

Asian markets advanced following the gains in U.S. and European markets in Thursday's trading. 

China's consumer prices rose at a slower pace in August, the National Bureau of Statistics said Friday. 

The inflation index rose 2.5% in August after rising 2.7% in July on an annual basis. 

The unexpected slowdown in inflation lifted markets in Shanghai and in Hong Kong.  

The Nikkei 225 index gained 0.5% to 28,214.75, the Hang Seng Index added 2.7% to 19,362.25, and the Sensex index increased 0.2% to 59,793.14. 

For the week, the Nikkei added 2.2%, the Hang Seng 50 added 2.7 and the Shanghai index and the Sensex gained 1.7%. 

The Australian index gained 0.7% in Friday's trading and gained 1% for the week following the sustained rise in commodities prices.