The week begins with a holiday in the United States

By: Miguel A. Rodriguez

11:15, 05 September 2022

This will reduce liquidity in the markets after two consecutive weeks of falls, encouraged by the hawkish speech of the Fed officials

After the harsh speech of Jerome Powell, the stock indices have not recovered and continue with strong selling pressure. The Fed Chairman said they would continue to raise interest rates as much as necessary to lower inflation to its target of 2%. He even acknowledged that this would bring about damage to the economy.


The inflation data published lately shows clear signs of having reached a peak, so investors did not expect the Federal Reserve's position on a tighter policy. On the contrary, a softer speech was anticipated, referring to the dependence of future economic data on interest rates.


With inflation declining, long-term inflation expectations have fallen significantly. The Fed's concern centers on potential wage inflation given the extraordinarily tight labor market.

For this reason, the non-farm payroll data published on Friday is important.


The job creation figure was in line with forecasts, with a drop of around 200K jobs from the previous month. However, the unemployment rate rose to 3.7%, and average hourly earnings (wages) grew less than expected.


In principle, this would be a good figure for the stock markets, as it shows a worsening of the labor market that should take pressure off the Fed to raise interest rates. Following the figure’s release, Wall Street indices rose earlier in the session and rallied from lows.

Market interest rates also fell after the data, with the 10-year bond falling from 3.29% to around 3.18%.


But unexpected news came to put an end to this initial optimism. Russia announced the cutoff of gas supply through the Nord Stream 1 gas pipeline indefinitely. According to Moscow, the reasons for this cut are technical. However, these arguments are not plausible, and everything points to a political decision because of the G7 decision to put a cap on the price of Russian oil.


Risk sentiment among investors worsened significantly, and Wall Street indices turned around and ended the session down around 1% or more.


Today there are no relevant economic figures, as well as a bank holiday in the United States. Only one event is in focus: the OPEC+ meeting, which could end with some decision to cut oil production if the latest statements by Saudi Arabia are confirmed. The consensus is that this initiative will not be adopted, and the production will remain unchanged.


Sources: Bloomberg, Reuters

Share this article

The information presented herein is prepared by and does not intend to constitute Investment Advice. The information herein is provided as a general marketing communication for information purposes only and as such it has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is not subject to any prohibition on dealing ahead of the dissemination of investment research.                                                                                                                            Users/readers should not rely solely on the information presented herewith and should do their own research/analysis by also reading the actual underlying research. The content herewith is generic and does not take into consideration individual personal circumstances, investment experience, or current financial situation.Therefore, Key Way Investments Ltd shall not accept any responsibility for any losses of traders due to the use and the content of the information presented herein. Past performance and forecasts are not reliable indicators of future results.