October 4, 2023

Weekly Market Update (Week 29)

How did major stock market benchmarks perform this week?

  • Asian markets outperformed the rest of the world with Hong Kong’s Hang Seng Index bucking the negative trend completely, finishing up over 1% whilst South Korea’s KOSPI index ended 0.37% above the previous week’s close.
  • The UK’s FTSE 100 ended the week practically flat.
  • Germany’s DAX and the French CAC40 Indices suffered minor declines.
  • US majors had a tough week, with the Dow Jones Industrial Average and S&P 500 underperforming European counterparts with steeper declines.

What was driving stock markets this week?

“US markets rallied the previous week, mostly over dovish monetary policy discussions, so I see this week’s underperformance as nothing more than a recalibration. This week we had two FOMC members supporting the benefit of proactive rate cuts although the rhetoric was not sufficient to alter expectations for a 25 basis point reduction at the next Federal Reserve meeting. With nothing really compelling on monetary policy front, investors turned their attention to the mixed bag of US earnings – which is raising some questions about underlying growth. Asian markets on the other hand were mostly powered by looser monetary policy expectations within their respective regions. For example, the South Korean central bank released a dovish statement this week after cutting interest rates, suggesting aggressive rate cuts may be forthcoming on the other side of the pond.”


FOMC members continue to support loose monetary policy

FOMC members Richard Clarida and John Williams both made the case for reducing interest rates sooner rather than later, with an academic view that acting proactively is better than being reactive.

Williams cited studies suggesting that when monetary policy is already loose, central banks should “move more quickly than you otherwise might” rather than waiting “for disaster to unfold.” When rates are higher, regulators “can afford to move slowly and take a ‘wait and see’ approach,” he said in a speech. 

“When you only have so much stimulus at your disposal, it pays to act quickly to lower rates at the first sign of economic distress,” said Williams, who is president of the New York Federal Reserve Bank.

Gold continues to shine amidst falling interest rates and rising geopolitical tensions.

  • On Friday there were reports of Iran seizing oil vessels in the Strait of Hormuz, which heightens tensions in the region a day after President Donald Trump said a U.S. Naval ship shot down an Iranian drone.
  • Gold was quoted at $1,426.50 per ounce on Friday, up 0.7% from last week as ongoing geopolitical tensions, particularly with Iran, together with rate cut talks, encourages investors to seek the safe-haven commodity. The precious metal had hit a high of USD1,452.49 earlier this week – its highest level in six years.
  • Commerzbank on Wednesday reported that Gold exchange-traded funds registered their largest daily inflow in almost four weeks, with holdings of the precious metal by global Exchange Traded Funds (ETFs) rising by 7.4 tonnes.
  • Meanwhile, UBS reported that holdings in global gold-backed ETFs have increased to 80 million ounces for the first time in six years.
  • UBS analysts said growing populism and rising uncertainty in global economic policy is driving investors to gold, explaining that gold is an alternative asset that acts as a hedge against tail risks. UBS sees gold as a good diversifier, which in this type of environment, is likely to see extended gains.

In comparison, how did Bitcoin and Ethereum behave this week?

  • Between Bitcoin and Ethereum, the later was the worst performer, plunging 20.4% from a week ago at the time of writing.
  • Bitcoin was trading at $10,612 at the time of writing, representing a more modest 9.7% decline.

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