Apple leads slump in tech stocks, GBP relief rally continues – Daily Market Brief, September 30, 2022

The FTSE is edging cautiously higher after UK GDP was upwardly revised to 0.2%, from a contraction of -0.1%. The UK index is still set to lose 2% this week.

·         China PMIs were mixed- manufacturing expanded, but non-manufacturing missed forecasts

·         EUR/USD holds above 0.98 ahead of Eurozone inflation, which is set to rise to 9.7% YoY

·         Gold rises towards $1670 ahead of US core PCE, which is expected to rise further

The BoE intervention into the bond market only brought short-term relief to the financial markets. Government bond yields climbed higher across the board yesterday, piling pressure on stocks. Interestingly the FX markets were trading to a different tune, and the USD failed to resume its rally despite the yield on the ten-year treasury rising to 3.79%.

Apple led tech wreck

Stocks on Wall Street fell sharply, declining to the lowest level in 22 months amid recession fears and a tech rout led by Apple. Bank of America downwardly revised the tech giant from buy to neutral, citing concerns over consumer demand. This rare downgrade came amid rising concerns over demand for the new iPhone 14. The downgrade fueled concerns over a slowdown in companies’ growth ahead of earnings season next month.

China PMIs

Overnight manufacturing PMI data from China was mixed. Chinese manufacturing unexpectedly grew in September after two months of declines, as COVID lockdown restrictions eased and thanks to stimulus measures. The official manufacturing PMI rose to 50.1 in September, ahead of forecasts of 49.6 and up from last month’s 49.4. However, China’s non-manufacturing PMI was less-impressive, falling to 50.6 in September from 52.6, pulling the offshore yuan to a record low.

UK GDP

The FTSE is edging higher after falling 1.7% in the previous session to a 2.5-year low. The index is being helped higher by an unexpected rise in second-quarter economic growth. Q2 GDP was upwardly revised to 0.2% QoQ from -0.1% in the previous estimate. While this is still anaemic growth, the UK will avoid falling into recession in the third quarter, most likely postponing it to Q4. The rise in the FTSE is looking far from convincing.

The recovery in the pound following the BoE’s intervention is more encouraging. GBP/USD rallied 2% yesterday, rising above 1.10 and is on track to gain 2.4% across the week. Investors are betting that the BoE will need to hike rates aggressively in September.

Eurozone inflation

EUR/USD holds quietly over 0.9800, ahead of Eurozone inflation and US core PCE data. Germany’s consumer price index rose to 10%, up from 7.9%, meaning inflation shows no signs of slowing. With this in mind, Eurozone inflation which is expected to rise to a record 9.7%, up from 9.1%, could come in hotter than expected. With inflation hitting close to double digits it is challenging to see how the ECB can raise rates by less than 75 basis points.

US core PCE

Inflation concerns continue to drag on the market. Core PCE, the Federal Reserve’s preferred measure for inflation, is expected to continue rising to 4.7% YoY, while headline PCE is forecast to rise to 6.6%. Ahead of the release, expectations for the Fed hiking interest rates by 75 basis points in the November meeting at 55%. Hotter than forecast, core PCE could lift this probability, potentially lifting the USD higher and pulling stocks and gold lower.

Gold is rising for a fourth straight session and is set to book weekly gains of 1.3% after two weeks of losses.  

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.

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