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Benchmark indices finished July significantly higher

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Miguel A. Rodriguez
Miguel A. Rodriguez
05 November 2022
The core personal consumption expenditure figure released on Friday was higher than expected at 4.7%, showing no setback in July

Higher was also the labor cost index which rose 1.3% in the quarter, topping the 1.2% expected.

Therefore, the inflation for July, which at first was expected to be somewhat lower due to the falls in fuels and raw materials, still does not give any sign of a decrease. The labor costs continue to rise, being one of the main reasons for concern of the Federal Reserve pushing them to start raising interest rates.

 

However, Treasury bond yields did not react to these figures and continued to fall, anticipating less aggressive interest rate hikes in the future.

 

The market finds somewhat contradictory data, while the technical recession was confirmed with a negative GDP figure for Q2. This can effectively slow down the pace of interest rate hikes by the Federal Reserve, as the data on consumer confidence in the University of Michigan increased in July to 51.5. The still high employment rate can explain this despite the tightening of monetary policy. From now on, lower job creation numbers will probably be seen, and layoffs will increase. Still, we must remember that the labor market is currently at full employment, so the economic impact should not be high.

 

The Federal Reserve will consider all these aspects for the decision they will have to take at their next meeting in September. Everything seems to indicate that this time the Fed will lean towards a rise of only 50 bps, with which most market analysts seem to agree. The slowdown in the economy will weigh more heavily on the Fed officials' decision, as inflation expectations have dropped significantly. And this is reflected in the interest rate curve, with longer-term bond yields falling.

 

The market embraced this scenario, and the US Dollar weakened on the last day of the month.

At the same time, the stock market reacted positively, partly due to expectations of lower interest rates but also driven by the good results for the Q2 that the major North American companies are publishing.

 

From a technical analysis perspective, the Nasdaq index closed the session slightly above the 12,947 level, the point from which the downtrend would be considered finished.

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Sources: Bloomberg, Reuters

This information/research prepared by Miguel A. Rodriguez does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views and consequently any person acting on it does so entirely at their own risk.The research provided does not constitute the views of KW Investments Ltd nor is it an invitation to invest with KW Investments Ltd. The research analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report.The research analyst in not employed by KW Investments Ltd. You are encouraged to seek advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit that conforms to your specific investment objectives, financial situation, or particular financial needs before making a commitment to invest. The laws of the Republic of Seychelles shall govern any claim relating to or arising from the contents of the information/ research provided. 

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Miguel A. Rodriguez
Miguel A. Rodriguez
Financial Writer

Miguel worked for major financial institutions such as Banco Santander, and Banco Central-Hispano. He is a published author of currency trading books.