Global Investors Confront Slower Growth and Higher Rates

Barry Adams
14 Dec, 2022
New York City

Stocks gyrated on Wall Street after the latest rate hike and Fed's comments about the health of the economy. 

The Federal Reserve lifted its lending rate range by 50 basis points, slower than 75 basis points increases for four times in a row. 

The central bank also held out for higher rates in 2023 and said inflation is still too high and it may take some time before prices are more stable. 

"The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time," the accompanying statement from the Federal Reserve noted. 

The Federal Reserve also lowered its 2023 GDP growth outlook to 0.5% from the previous estimate of 1.2% in September and also indicated the median fed funds rate at 5.1%. 

"Inflation is still too high and we have a long way to go before price stability, said Chairman Jay Powell at a press conference after the rate decision.  

The additional data provided by the Federal Reserve also showed that the PCE inflation, an alternative measure of consumer inflation, is not expected to drop to 2% till 2025. 

 

Market Indexes Struggle On Rate Worries 

Market indexes gyrated after the widely anticipated rate hike moderation but investors were on the edge after Fed stressed the need to lift rates in 2023. 

Major averages advanced 6.% and reversed earlier gains after the rate decision and closed down 0.6%. 

The S&P 500 index decreased 0.6% to 3,995.32 and the Nasdaq Composite index fell 0.76% to 11,170.89. 

 

Energy Prices Extend Weekly Gains 

Energy prices continued to rebound in New York, Europe and Asia. 

Crude oil prices rose amid optimism about China's reopening and above average winter conditions in the U.S. and colder temperatures in Northern Europe.  

Crude oil increased $1.80 to $77.12 a barrel and natural gas prices eased 54 cents to $6.39 a thermal unit. 

 

Bond Yields Inch Higher 

Treasury bond yields lacked direction after the rate decision and short term yields perked up few ticks but long term yields declined. 

The U.S. Fed is expected to increase rates at least by 50 basis points and investors are already looking ahead in 2023 and hoping that the Fed may pause rate hikes at its first meeting in 2023 in February. 

The yield on 2-year Treasury notes eased to 4.23%, 10-year Treasury notes inched higher to 3.49% and 30-year Treasury bonds edged higher to 3.54%. 

 

Import and Export Price Indexes Eased In October 

U.S. import prices declined 0.6% in November and export prices eased 0.3% from the previous month, the fifth monthly fall in prices in a row, the U.S. Bureau of Labor Statistics said Wednesday.

The import price index for October was revised to a 0.4% decline. 

The import prices fell after the cost of petroleum decreased 2.8% in November and non-fuel import prices declined 0.4% in the month, the largest decline since July.   

On an annual basis, import prices inflation eased to 2.7%, the smallest increase since January 2021.  

 

Mortgage Applications Rebound 

Mortgage applications rebounded 3.2% in the week ending on December 8, according to the latest survey results released by the Mortgage Bankers Association. 

The seasonally adjusted Market Composite Index increased 3.2% from the previous week and rose 0.4% on an unadjusted basis. 

The refinancing index increased 3% from the previous week but was still down a whopping 85% from a year ago. 

 

U.S. Stock Movers 

Delta Air Lines, Inc gained 2.9% to $34.34 after the company said demand for air travel remains strong and lifted its annual views. 

For 2022, the airline estimated revenue between $45.5 billion and $45.6 billion and earnings per share between $3.07 and $3.12.

The company also estimated 2023 revenue to increase between 15% and 20% and earnings per share to fall between $5.0 and $6.05 and free cash flow to surpass  $2.0 billion. 

Aspen Group Inc increased 32% to 46 cents after the online education company reported better-than-expected quarterly results. 

Revenue in the fiscal year second quarter 2023 ending in October declined to $17.1 million from $18.9 million a year ago. 

Net loss in the quarter shrank to $2.3 million from $2.9 million or diluted loss per share fell to 9 cents from 11 cents a year ago. 

 

European Markets Struggle Ahead of Rate Decisions 

European markets closed down ahead of the widely anticipated rate hike in the U.S. today and in the eurozone and the U.K. tomorrow. 

Investors were cautious ahead of rate decisions and major averages lacked direction. Resource stocks were also in focus for the second week in a row after crude oil prices extended recent gains. 

After the close, the Federal Reserve lifted its key lending rate range by 50 basis points to 4.25% and 4.5% and held out for more rate hikes. 

 

Europe Indexes Face Headwinds 

Stock market indexes in the region opened lower and lacked direction and reacted to domestic corporate news. 

Investors also awaited rate decisions in the eurozone tomorrow and worried that the higher rates may be needed for a prolonged period of time to bring down high inflation induced by supply constraints. 

The DAX index edged down 0.2% to 14,460.20, the CAC-40 index dropped 0.2% to 6,730.79 and the FTSE 100 index declined 6.96 points to 7,495.93. 

 

Oil Extends Weekly Gains to Third

Crude oil rose amid optimism about China reopening and the hopes of improving activities in the second largest economy. 

Brent crude oil rose $2.32 to $83.03 a barrel and the futures of immediate month delivery of Dutch TTF natural gas dropped 4.4% to 131.50 per MWh. 

 

Bond Yields Steady, Euro and Pound Advance

The yield on 10-year German Bunds increased to 1.94%, French bonds edged higher to 2.43%, the UK Gilts inched lower 3.32% and Italian bonds held steady at 3.87%.

The euro edged higher to $1.68 and the British pound to $1.242.

 

Eurozone Industrial Output Declined 

The currency block's industrial production declined more-than-expected 1.5% after all sectors expected non-durable consumer goods contracted in October. 

Eurozone industrial output declined for the first time in three months after rising for two months in a row. Output fell 2.0% in October from September, Eurostat said Wednesday.

On a yearly basis, industrial output declined 3.4%, matching expectations set by some economists. 

 

Spain Consumer Inflation Slows 

Spain's consumer price inflation slowed to 6.8% in November from 7.3% in October and continued to ease for the fourth month in a row after peaking at 10.8% in July, the INE reported Wednesday.

 

UK Inflation Eased but Stays Elevated 

Consumer prices in the island nation edged lower from the 41-year high level in October, just a day ahead of the Bank of England's rate decision. 

U.K.'s consumer price inflation slowed to 10.7% in November from 11.1% in October after transportation costs rose at a slower pace and monthly pace slowed to 0.4% from 2.0%, the ONS said Wednesday.

 

Italy Unemployment Eases Slightly 

Italy jobless rate eased and total hours worked were unchanged in the third quarter. 

Italy's seasonally adjusted jobless rate eased slightly to 7.9% in the third quarter from 8.1% in the second quarter, the statistical office Istat said Wednesday.

Total number of unemployed declined 2.6% to 1.98 million and the number of people not in the job market increased 0.2% to 12.85 million or edged up 0.1% to 34.5% in the age group between 15 and 64 years. 

 

Europe Stock Movers 

In Paris trading Arcelor Mittal and Carrefour SA dropped 3.5%. 

LVMH gained 0.4% on China reopening hopes but financial stocks trended lower after AXA, Societe Generale and BNP declined between 1% and 2%. 

TUI AG dropped 7.8% to 146 pence after the tours operator said it has agreed to repay its pandemic era debt of