Market Pulse

In focus

Global equity markets suffered last week from a barrage of geopolitical events and warnings of worsening financial conditions. Bond markets sea-sawed with the dollar strengthening to a new 20-year high as the Federal Reserve’s (Fed) higher-for-longer narrative set in. Personal Consumption Expenditures (PCE) from August supported that notion as core PCE exceeded investor expectations.

The Russia/Ukraine conflict intensified last week, culminating on Friday with the annexation of four regions of Ukraine. The worsening conflict casts a darker shadow on the European economy as it battles high inflation and punishing energy prices. The United Kingdom (UK) found its spot in the headlines as well after its government’s mini-budget generated a strong negative reaction, sending the pound to an all-time low against the U.S. dollar. The lack of confidence in the government’s plan elevated yields on government bonds (gilts) and prices fell. Just as pensions began to feel the squeeze, the Bank of England stepped in and greased the wheels, buying long-dated gilts.

These events highlight our theme of wider potential outcomes. Despite this, we don’t view this as a time to become even more cautious given the already-steep decline in markets. The silver lining is that our expectations for longer-term returns are improving.

A look back

• Global stocks continued their slide last week, dropping by 2.5% and falling for a third-consecutive week. International developed markets fell 1.4% as instability budded in the UK, and U.S. equity markets declined 2.9%. Emerging market equities fared the worst, dropping 3.3% on the week.
• The 2-year U.S. Treasury yield held flat while the 10-year yield once again rose, with the 2-/10-year inversion narrowing from -0.51% to -0.41%.
• Core PCE, the Fed’s preferred metric for inflation, came in above expectations for the month of August and showed strength across a range of categories.

A look ahead

• Investors will be focused on jobs data this week as they continue to gauge the resilience of the U.S. economy in the wake of continued elevated inflation readings and a hawkish Fed.
• There is an abundance of Fed speeches this week with central bankers taking the stage for five days straight.
• Economic releases: ISM & S&P Global U.S. Manufacturing & Services, Construction Spending, Durable Goods, Factory Orders, JOLTS Job Openings, Nonfarm Payrolls, Wholesale Inventories, MBA Mortgage Applications, and the Unemployment Rate.

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