Market update – August 2022

Article written in September 2022

💡 Inflation and geopolitical tensions – August 2022 market drivers 💡

📉 1. US markets: Determination of the Fed to bring inflation back down to 2%: 📉

The CPI (Consumer Price Index) data for July (revealed on August 10th) was positive, at 8.5% – lower than June data at 9.1%. Initially, the markets reacted very favourably. However, two weeks later, on August 26th, Powell made a speech in which he clearly stated that the tightening of the monetary policy (hikes in interest rates etc) would continue relentlessly (see Article 1 for more details).
Key quote: “[Back in the 1980s] A lengthy period of very restrictive monetary policy was ultimately needed to stem the high inflation and start the process of getting inflation down to the low and stable levels that were the norm until the spring of last year. Our aim is to avoid that outcome by acting with resolve now.”.
The US markets reacted very negatively to the speech and went down by almost 10% in the next days, before slightly going back up.

📉 2. US and China: restrictions around sophisticated chips: 📉

End of August, the US government released a set of restrictions to the sale of high-end GPUs (Graphic Processing Units) to China and Russia, which affected severely Nvidia (threatening a business in China representing $400M in the last fiscal quarter) and aiming also at at least one of AMD chip. The news sent the overall semiconductor sector down (see ETFs SOXX, SMH, SOXL).
See Article 2 for more details.

📈 3. In Europe, the ECB rises interest rates by 0.75 points: 📈

The European Central Bank is also aiming to bring the inflation back down to 2%. After a first rate hike of 0.5% in July (the first increase in 11 years), on September 8th, the ECB increased interest rates further by 0.75%. At first sight, it looks like this determination to cool down inflation, setting recession fears aside, is pleasing the markets, as the Eurostoxx50 is up 2% at the time of writing.

🎯 4. The Ukraine conflict evolves continuously: 🎯

While it seems that the Ukraine war is set to last for a very long time, and there has been no major change in the situation on the field, the situation is actually evolving fast and this could impact the markets:
– Ukraine has launched a counterattack and is now leading initiatives on the battlefield
– Russia has officially stopped supplying gas to Europe until “collective West” economic sanctions are lifted (see Article 4)
– For the first time in months, Russia also officially mentioned on September 5th (Russian presidential spokesman Dmitry Peskov) to be ready to negotiate the end of the war (see Article 5). While a resolution of the conflict seems still very unlikely to happen in the short term, as Moscow and Kyiv have currently very different views of what an agreement would look like, it’s an important sign that things are moving a lot under the surface

🎯 5. What to expect next? 🎯

✅ Keep your eyes peeled for US CPI data on September 13th
✅ FOMC meeting on September 20-21st
✅ September is historically a bad month for stocks, so be careful; however, this year is quite unusual, so don’t make decisions solely based on historical data

Thank you and trade safe~

Nico