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Can the market momentum last?

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Miguel A. Rodriguez
Miguel A. Rodriguez
05 November 2022
The latest inflation report brought some relief to consumers

Richmond Fed President Barking reiterated his fellow Fed officials’ stance on inflation to remain low for an extended period. He favors a tighter monetary policy until inflation reaches the 2% target.

 

But he didn’t say if the next increase would be 50 or 75 basis points. He referenced employment data and all the latest inflation figures released. Everyone agrees that the latest CPI data is not enough to change the course of monetary policy: in the next publications, a change in the market trend is needed. However, the market is already beginning to bet that the peak of inflation has already happened, which is reflected in market interest rates which, although with some recent rise, remain at the lowest levels of the last two months.

 

Friday saw the release of Michigan's preliminary consumer confidence index, which came out better than expected but was mixed in the details. Although expectations rose to 54.9 from 47.3, current conditions moved to 55.5 from last month’s 58.1. Inflation expectations were also mixed, with 1-year expectations falling to 5.0% from 5.2% and 5-year expectations rising to 3.0% from 2.9% last month.

 

In any case, they are encouraging figures for inflation and economic expectations that gave upward momentum to the stock markets one more day.

 

This week the US Fed will publish the minutes of the last FOMC meeting, where the Fed tightened interest rates by 75 basis points and moved the target rate to "neutral" at 2.5%. Although no one doubts the rate hikes will continue, the market will want to know the result of these minutes since they may give interesting clues about the monetary policy. Two scenarios are possible: either they continue with aggressive hikes or, on the contrary, they can pause the rhythm while waiting for the result of economic data.

 

Meanwhile, the Wall Street indices continued to rise last week, with the S&P500 up 1.50% on Friday and technically confirming the end of the bear market. Still, many analysts and institutional investors consider this movement is not more than a correction within a downtrend and expect even below the last lows. But, until now, neither the economic data (inflation, employment, earnings season, etc.) showed signs of any deep slowdown in the economy that could cause a movement like that, nor does the technical scenario point to it. Everything seems to move in the opposite direction.

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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.