Market Update – 23rd November 2022.

25th November 2022

Oil prices went on a wild ride this week, prices fell to a 10-month low on Monday after the Wall Street Journal reported that OPEC would increase supplies at their next meeting. Saudi Arabia was quick to deny the report which led to a strong rebound in markets on Tuesday. The UK FTSE 100 index hit a two-month high with Shell plc contributing the most to the index’s gains.

At the time of writing, the US WTI oil benchmark stands at $81 per barrel whilst Brent Crude oil is currently $89 a barrel, significantly lower than the highs we saw earlier on in the year which will help ease inflationary pressures.

Just a day after OPEC’s meeting on the 4th of December, Europe’s embargo on Russian oil starts as well as the price cap on Russian oil exports that the US treasury is looking to impose. Russia has reiterated that they would cut supply to any countries observing the price cap, so there is a lot for oil-producing countries to consider in the coming weeks.

European stocks also made gains yesterday, led by energy and mining firms with stocks hitting a three-month high. Eurozone households demonstrated resilience as the flash consumer confidence in the region edged up by 3.6 points this month to a five-month high.

China’s central bank announced fresh support for the country’s struggling property sector on Monday, helping to boost sentiment. The central bank will provide 200 billion yuan in loans to six commercial banks for housing completions.

US stocks rose on Tuesday as investors continue to re-evaluate the Federal Reserve’s strategy for interest rate hikes going forward. The S&P 500 closed at a two-month high after sales forecasts from retailers eased concerns about the effect of inflation on the consumer as the Christmas shopping season gets underway, whilst a jump in oil prices helped lift energy shares.

Investors await the minutes from the Federal Reserve’s November policy meeting later today, offering an insight into how officials view economic conditions. We heard from several US central bankers this week, with some saying they are open to slowing the pace of rate hikes. Fed President Mary Daly said on Monday that financial markets are acting like interest rates are much higher than that in the real world, the impact of US interest rates is likely greater than what its short-term rate implies. Her perspective confirms what we have been saying all along, that the markets have priced in a monetary policy setting well beyond what the Fed has imposed so far. Daly went on to say that “it will be important to remain conscious of this gap between the Federal funds rate and the tightening in financial markets. Ignoring it raises the chances of tightening too much.” Slowing the rate of future rate hikes is supportive for markets going forward.

Still to come this week, we have US, Eurozone and UK PMI. And, US new home sales and durable goods orders. Also, US stocks and bond markets are closed for the Thanksgiving holiday, on Thursday.

Kate Mimnagh, Portfolio Economist