Wall Street rolls over after hot US GDP report – Market Brief, December 23, 2022

Wall Street rolled over on Thursday, with major US indices erasing gains from the past two days, only to see some late buying prevent new monthly lows. Hotter than expected US Q3 GDP data has again raised expectations for rate hikes at the next Fed meeting.

-Dow tumbles after positive GDP surprise

-European indices post modest losses

-Dollar sits near weekly highs but action is muted

-Gold erases weekly gains

Dow tumbles after positive GDP surprise

Tesla led a massive sell-off in tech stocks, tumbling another 9% as investors fretted about highly valued stocks and Elon Musk getting distracted by Twitter. The Dow slid 349 points but finished well off its lows where losses at one point exceeded 800 points. The S&P 500 and Nasdaq Composite fell 1.45% and 2.18% respectively.

US GDP data triggered the sell-off amid fresh fears the Fed would need to keep tightening policy into 2023 and possibly bring on a recession.

Micron Technology added to the bearish sentiment when its shares slipped 3.4% after reporting a wider-than-expected quarterly loss and miss on revenue in its earnings report released after the close on Wednesday.

Representing the general feeling among big investors was star fund manager and founder of Appaloosa Management David Tepper. Tepper warned on CNBC that he’s “leaning short” on equities because it’s unusual for global central banks to tighten at the same time. 

European indices post modest losses

Shares in Europe were led lower by Wall Street but the losses were much more modest, with indices retaining most of the gains made over the past two days. Higher rates for longer in the US has a less direct impact on Europe, while investors are still favouring the more stable ‘value’ investments that proliferate Europe over the ‘growth’ possibilities available in the US.

Asian markets have started Friday on the front foot, boosted by the gradual China reopening with news of more travel restrictions getting lifted inside the country.  

Dollar sits near weekly highs but action is muted

The strong US economic data naturally came to the support of the US dollar but lower FX market volumes meant the response was quite muted. 

EUR/USD & GBP/USD both closed lower on Thursday, forming ‘spinning top’ candlesticks representing indecision around their December lows. USD/JPY finished flat just above 132 but still well down on the week after the BOJ policy change. 

Data recap

US Q3 GDP came in at 3.2% y/y and well ahead of the prior reading of 2.9%.

Japan’s national CPI reading was 3.8% y/y in November, above the 2.7% expected and up from the prior reading at 3.7%. The core measure excluding food and energy came in at 2.8%, up from 2.7% prior.

Coming up 

The US personal consumption expenditure report is due out on Friday. The core PCE data is known as the Federal Reserve’s preferred measure of inflation. Expectations are for a drop from 5% y/y to 4.7%. 

New home sales and December consumer sentiment index are also slated for release.

Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances, or needs.

Sources: Bloomberg, CNBC, Reuters, FX Street

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