Weekly Market View from Realm Investment Management – Week ending 26th August 2022
The main focus for investors was the annual Jackson Hole symposium where Fed Chairman Jerome Powell’s much anticipated speech on Friday led to some market volatility at the end of the week. Powell stated the Fed “must keep at it until the job is done” meaning interest rates must stay high until inflation has been brought under control. Investors anticipating that the Fed would begin lowering rates again early next year may well be disappointed. Equities did not take kindly to the message that this “unfortunate cost of bringing down inflation” will “bring some pain to households and businesses”.
US 10-year Treasury Yield rose back above 3%, putting further pressure on stocks.
One metric that has attracted some attention recently is the Volatility Index or VIX which has remained stubbornly low over the last few months despite US stocks having been on a roller-coaster. Even on Friday as US equities fell sharply, VIX stayed in the mid 20s. When the S&P 500 Index has previously fallen by more than 20% from a high, the VIX has spiked above 40 at some point – this time it has not. There is no rule that says it has to but some analysts see this as a flag that the level of fear reached so far indicates complacency not normally associated with bear market lows.
The European Central Bank is also concerned about rising inflation. Minutes from the ECB policy meeting in July indicated that more interest rate rises could be forthcoming.
Goldman Sachs says it expects that the UK economy will be in recession by the end of this year. GBPUSD has fallen below 1.1620 today (Tuesday), its lowest level since March 2020.
U.S. Risk Barometer 26th August 2022
Europe Risk Barometer 26th August 2022
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