The RBNZ raised the interest rate by 50 bps. Stock indices rise as economic indicators fall

The US Bureau of Labor Statistics (BLS) reported on Tuesday that job openings fell from 11.17 million to 10.05 million during August. On the one hand, the news is negative. Still, on the other hand, investors have begun to wonder if the slowdown seen in the US economy will cause the Federal Reserve to adjust its rate hike trajectory and be less aggressive. The real estate market is already in recession, manufacturing activity is slowing, and the labor market has shown signs of weakness. This caused the dollar and US government bond yields to pull back sharply, allowing the stock market to rise substantially.

At the close of the stock market yesterday, the Dow Jones Index (US30) increased by 2.80%, and the S&P 500 Index (US500) added 3.06%. The NASDAQ Technology Index (US100) jumped by 2.69% on Tuesday.

Monetary and fiscal policies in advanced economies, including continued interest rate hikes, could push the world into a global recession and stagnation, the UN Trade and Development said. The global recession has the potential to cause more damage than the 2008 financial crisis and the Covid19 shock in 2020. Developing countries in Asia and Africa could bear the brunt of the impending recession, according to the report. If central banks continue to raise interest rates without using other tools and without considering supplyside economics, the desired soft landing is unlikely.

The Global Manufacturing PMI fell into contractionary territory (below the 50 level) for the first time since 2020. The Core Index fell from 50.3 in August to 49.8 in September. The report points to a worsening manufacturing trend in the coming months amid an intensifying downturn in global trade flows, reduced demand related to the ongoing costofliving crisis, and growing economic uncertainty about the outlook.

Reuters reported that billionaire Elon Musk plans to realize his initial $44 billion bid to privatize Twitter Inc.

Stock markets in Europe were mostly rising yesterday. Germany’s DAX (DE30) gained 3.78%, France’s CAC 40 (FR40) added 4.24%, Spain’s IBEX 35 (ES35) jumped by 3.14%, Britain’s FTSE 100 (UK100) closed up 2.57% yesterday.

Fiscal changes in the UK had a rather broad impact on global risk attitude and probably contributed to the recovery of risky assets and bonds. But according to analysts, European assets still have a long way to go to restore market positioning, given the energy crisis and geopolitical events. Experts remain skeptical about Europe and believe the recent recovery in sentiment is temporary.

There will be an important OPEC+ meeting today. According to preliminary information, the OPEC+ countries will consider cutting the quota by 12 million barrels per day in order to support oil prices. Yesterday, the price of “black gold” jumped by 3% on these rumors. If OPEC+ countries cut production, this step will sharply reduce supply in the oil market. For his part, Kuwait Oil Minister said yesterday that OPEC+ would make a suitable decision to guarantee energy supplies and serve the interests of producers and consumers.

Asian markets traded higher yesterday. Japan’s Nikkei 225 (JP225) gained 2.96%, Hong Kong’s Hang Seng (HK50) did not trade, and Australia’s S&P/ASX 200 (AU200) ended the day up 3.75%.

The Central Bank of New Zealand (RBNZ) raised its interest rate by 0.5% but considered a 0.75% increase. The RBNZ raised interest rates for the eighth time in a row, bringing the interest rate to 3.5%, the highest among major economies. The meeting minutes said that inflation is currently too high and employment is above the maximum sustainable level. RBNZ Governor Adrian Orr noted that their tightening cycle has become “very mature,” although “there is still some work to be done.” The RBNZ expects its OCR rate to be 3.7% by December, and with only one meeting left this year, the RBNZ is very likely to raise the rate by 0.25% at the end of the year.

S&P 500 (F) (US500) 3,791.05 +112.62 (+3.06%)

Dow Jones (US30) 30,316.98 +826.09 (+2.80%)

DAX (DE40) 12,670.48 +461.00 (+3.78%)

FTSE 100 (UK100) 7,086.46 +177.70 (+2.57%)

USD Index 110.15 1.60 (1.43%)

• Australia Retail Sales (m/m) at 03:30 (GMT+3);
• Japan Services PMI (m/m) at 03:30 (GMT+3);
• New Zealand Interest Rate Decision at 04:00 (GMT+3);
• New Zealand RBNZ Rate Statement at 04:00 (GMT+3);
• Eurozone Services PMI (m/m) at 11:00 (GMT+3);
• UK Services PMI (m/m) at 11:30 (GMT+3);
• OPEC+ Meeting at 13:00 (GMT+3);
• US ISM Services PMI (m/m) at 17:00 (GMT+3);
• US Crude Oil Reserves (w/w) at 17:30 (GMT+3).

by JustMarkets, 2022.10.05