Aviso Weekly Market Monitor: September 18th – September 22nd

Sep 25, 2023

Market developments

The S&P 500 Index faces its worst week in six months as global investors grapple with the possibility of sustained high interest rates to combat inflation. The index slipped -2.9% for the week despite technology stocks partially recovering from recent losses. The Nasdaq saw its largest drop since late August, down -3.6% for the week, while the TSX dropped more than -4%. Investor anxiety over Fed policies leading to a potential recession led to a significant sell-off in stocks, marked by the fastest pace since December. Global equity funds experienced large outflows this week, with U.S. stock funds witnessing significant withdrawals.

Fixed income:
The U.S 10yr yield briefly exceeded 4.5% for the first time since 2007 before dropping and closing slightly above 4.4%. In Canada inflation surprised to the upside and led to the Canadian 10yr increasing 17bps, closing over 3.9%. Central banks worldwide have cautioned against expectations for early rate cuts, and the Fed hinted at further rate hikes later this year.

Crude oil experienced a volatile week, with prices pulling back from yearly highs and closing just over $90. This was due to a combination of factors, including the Federal Reserve’s signal of further rate hikes and Russia’s temporary embargo on gasoline and diesel exports.

Auto Workers Strike:
The United Auto Workers union expanded its strike, affecting General Motors and Stellantis parts-distribution centers across 20 states. Ford was exempted from additional strikes due to progress made in negotiations. The strike may eventually impact car production, leading to potential shortages and rising prices. The union is seeking wage increases of approximately 36% over four years, citing high CEO pay and recent corporate profits. However, automakers argue that they need to invest in the transition to electric vehicles and cannot meet all the union’s demands. As the strike expands to parts distribution centers, consumers may face difficulties in getting their vehicles repaired, potentially causing price increases if panic buying ensues. The strike has already led to production losses and economic losses for automakers.

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