According to the Arab Federation of Capital Markets, over the previous week, global stocks plunged further weighed down by concerns over higher interest rates and the health of the economy with the US dollar holding near recent peaks and government bond yields moving to above 4% on Wednesday, for the first time in 12 years, before easing again after UK government measures to calm market chaos. In parallel, oil prices recorded their first weekly gain in five weeks, supported by a weaker US dollar and the possibility that OPEC+ may agree to cut crude output when it meets on Oct. 5. However, gold prices headed for their biggest weekly gain in seven, when a series of aggressive US rate hikes this year has dented on the non-yielding metal’s appeal and lifted the dollar to a two-decade peak.
US Treasury yields witnessed volatile trading over the week
US Treasury yields surged between Monday and Wednesday, as markets digested the Federal Reserve’s interest rate hikes and absorbed economic commentary from Fed speakers, as investor concerns about interest rates increasing too quickly and leading to a recession are rising. In fact, the yield on the 2-year Treasury yield reached a high of 4.35%, the highest level since August 2007, while the 10-year Treasury yield hit a high of about 4.02%, or the highest level since October 2008, before erasing those gains to drop the most since 2020, as investors fled British fixed income markets following the new fiscal policy announcements, pushing the Bank of England to announce a bond-buying plan to stabilize the British pound. As such, the yield on the benchmark 10-year Treasury closed the week at 3.83%, while the policy-sensitive 2-year Treasury yield closed at 4.26%.
Following the new British fiscal policy announcements, including large swathes of unfunded tax cuts that have drawn global criticism, including from the IMF, the Bank of England decided to suspend the planned start of its bonds selling this week and to begin temporarily buying long-dated bonds in order to calm the market chaos, when yields on U.K. government bonds, known as “gilts,” were on course for their sharpest monthly rise since at least 1957. The yield on the 2-year Gilt plunged on Wednesday by 74 basis points at around 3.92%, while the country’s 10-year yield dropped by nearly 64 basis points to 3.91%. In parallel, the Bank of England’s Financial Policy Committee announced on Wednesday that the dysfunction in the gilt market posed a material risk to the country’s financial stability, and opted to take immediate action.
The US dollar index remained close to a one-week low of near 112.1, as the British currency rose to a fresh one-week high on Friday, after the UK government measure to undo some of the damages caused by last week’s tax-slashing, putting the UK currency on course for its best week in 2 years and a half. In fact, the Sterling touched $1.12 early in the Asian session, erasing somehow all of the rash losses in the aftermath of the new government’s so-called mini-budget last Friday. In parallel, the euro also jumped to a one-week peak after a heated German inflation reading reinforced expectations for more aggressive policy action from the European Central Bank (ECB). The euro was slightly touched on Friday $0.98, the strongest level in a week. However, the US dollar jumped to 7.13 yuan putting it on track for both its best week and month since April.
In parallel, Asian shares on Friday were headed for the worst month since the onset of the pandemic, while fears in currency and bond markets persisted over hawkish talk from central banks, worries about global recession, and rising geopolitical risk. In parallel, September was a bad month for investors on Wall Street, when all three major indexes have fallen more than 20% each from their highs, which makes it the worst September since 2002. In fact, the MSCI world equity index, which tracks shares in 47 countries, fell by 9.8% for the month and 7.3% for the quarter. It is worth mentioning that, in the first nine months of 2022, Wall Street recorded three straight quarterly declines, the longest losing streak for the S&P and the Nasdaq since the Great Recession and the Dow’s longest in seven years.
Oil prices rebounding again on weaker US dollar and fuel stocks drop
After recent losses since last week, oil prices rose again on Wednesday as the US dollar relatively eased and US fuel inventory figures showed larger-than-expected drawdowns and a rebound in consumer demand. In fact, US crude stocks fell by 215,000 barrels in the most recent week, while gasoline inventories declined by 2.4 million barrels and distillate inventories by 2.9 million barrels, as refining activity declined following several outages. As such, Brent crude futures settled at $89.3 per barrel in mid-week before easing down to $85.6 per barrel. However, oil prices jumped more than 3% at the beginning of this week, as OPEC+ is considering cutting output by more than 1 million barrels a day for the biggest reduction since the pandemic, in an attempt to support the market, during their meeting on October 5th.
Despite more damage discovered on the Nord Stream natural gas pipelines, gas prices in Europe fell as energy ministers supported measures to contain a crisis that’s threatening the region’s economy. In fact, the ministers’ gathering for a second emergency meeting this month supported a package, including a power-demand reduction goal and a profit grab from energy companies. More steps are likely next week, and the issue of a cap on wholesale gas prices is set to return to the table. In parallel, the European Union has already agreed on a voluntary target to cut gas consumption by 15%, but more action is needed. Berlin also announced Thursday that it would put a lid on local gas prices. Within this context, Dutch gas for November delivery, a benchmark for Europe, dropped by 7.3% at 188.8 euros a megawatt-hour, posting the first monthly decline since May, while the UK equivalent dropped by nearly 13%.
Gold prices moving upward on softer US dollar
Gold prices went up on Wednesday supported by a pullback in the US dollar, but the Federal Reserve’s commitment to stay on an aggressive rate-hike path kept the metal on track for its sixth straight monthly decline. Gold prices had declined after data showed US initial claims for state unemployment benefits dropped to 193,000, versus expectations of 215,000 applications for the latest week. In parallel, investors also took stock of data that US GDP fell at an unrevised 0.6% annualized rate in the second quarter, compared with a much larger contraction of 1.6% in the first quarter. As such, spot gold headed for its biggest weekly gain in seven of 1% at $1,672 per ounce, and down by around 3% for the month. In parallel, spot silver rose by 0.7% to $19.0 per ounce on a weekly basis, platinum was relatively steady at $857.4 and palladium was up by 4.6% at $2,169.
Cryptocurrency prices rebounded last week, with Bitcoin, the world’s largest and most popular cryptocurrency, trading almost flat at $ 19,425, up by 3.1% on a weekly basis, but the global crypto market capitalization remained below the $1 trillion mark. On the other hand, Ether, the coin linked to the Ethereum blockchain and the second largest cryptocurrency, went up by 2.4% to $1,332. It is worth mentioning that Bitcoin managed to hold its ground in Q3-2022, posting a neutral performance despite overwhelmingly negative sentiment in traditional markets, created by another interest rate hike, increasing inflation, and the partial mobilization of Russia in its ongoing conflict with Ukraine.