2022 Weekly Views

Highlights

US earnings recap

As of Friday, 22.8% of the S&P 500's market cap reported. Earnings are beating estimates by 3.2%, with 68% of companies topping projections. 3Q expectations are for revenues and EPS growth of 9.6% and 3.3%. Ex-Financials results appear healthier, with top- and bottom-lines expected to jump 10.4% and 6.9%. 3Q price action post results has been more severe for corporations missing forecasts. Companies beating on both revenues and EPS are outperforming the market by +1.1% vs. an average of +1.7%, while ones missing on both are underperforming by -6.6% vs. -3.1%.

Market update

Timeout call?

The S&P 500 closed the week at 3,752.75, +4.74% higher. The Dow Jones closed at 31,082.56, +4.89%, with the Nasdaq
higher by +5.22%. The volatility index VIX closed the week at 29.69 down from 32.02. The Euro Stoxx 600 gained +1.27%.

The 10-year UST closed at 4.22% up from 4.02% a week before. The yield curve flattened with the yield spread between the
3-month and 10-year UST at +17bps. US Corporate Bond spreads: Investment Grade tightened 8bps at 211bps and High
Yield tightened 35bps at 525bps. German 10-year Bunds yield closed at +2.42% up from +2.35% a week before. In Europe, Corporate Investment Grade spreads tightened 2bps at 246bps and High Yield spreads tightened 17bps at 671bps.

The US Dollar Index (DXY) depreciated -1.15% last week and closed at 112.01. The Euro closed at 0.9862 (+1.44% weekly);
the Yen appreciated +0.69%, closing at 147.65 and the Swiss Franc appreciated +0.76%, closing at 0.9978. Gold closed at
$1,657.69 appreciating +0.80%. Oil was mixed, Brent closed at $93.50 (+2.04%) and WTI at $85.05 (-0.65%).

Macroeconomy

Fed speakers

On Wednesday, Federal Reserve Bank of St. Louis President James Bullard said that he expects the Fed to end its “frontloading” of aggressive interest rate hikes by early next year and shift to keeping policy sufficiently restrictive with small adjustments as inflation cools. We heard similar messages from President Kashkari and Evans, with the first advising that the Fed still needs tighter policy but could wind up pausing tightening next year, while the latter expressed his hope that the September dot plot would prove the optimal amount of tightening, so a much slower pace of tightening next year. On Friday, San Francisco Federal Reserve President Mary Daly said the Fed should avoid putting the economy into an "unforced downturn" by raising interest rates too sharply, and it's time to start talking about slowing the pace of the hikes in borrowing costs. The market is already pricing in 76.8bps worth of hike at the Nov. 2 and 59.3bps on Dec. 14 meetings.

Energy in Europe

European Union countries are still looking to define a common gas price cap strategy. Around 15 countries, including Italy, France and Belgium are backing the idea, while countries such as Germany and the Netherlands are worried about struggling to attract gas from the global market under a price cap. The European Commission (EC) made a new proposal this week to tackle the energy crisis: a mechanism to contain excessive volatility at the Dutch TTF (Europe's biggest gas benchmark); a cap to tame price spikes in energy derivatives (used to secure fuel supplies in the medium and long term); new LNG benchmark (similar to the TTF); a consistent system for the EU to act as a single client to ensure all members to have access to affordable prices; and to sign “solidarity deals”, which allow gas to flow across borders from one country to another one suffering from shortages.

Japan economic data

As expected, Japanese inflation pushed higher in September with core inflation (all items excluding fresh food) coming in at 3.0%, up from 2.8% in the previous month. While the “new core” inflation (all items excluding fresh food & energy) came in at 1.8%, up from 1.6% in the previous month. About 40% of the core inflation (1.2 percentage points out of 3.0) was due to
the rise in energy prices. Wage rate is rising at a moderate pace in Japan so far (1.7% y-o-y in August) and PPI may also be at a peak. Japan’s exports and imports both rose strongly in September, partly due to yen’s depreciation. Japanese trade
balance has been in a deficit since late last year. If the trade deficit persists, it could become a problem for the Japanese
economy over the long term.

Semis restrictions

On Oct. 7, the US moved to significantly restrict China’s ability to buy or produce semiconductors. The wide range of
measures involve: export controls on advanced chips and manufacturing equipment, particularly if they are to be used or installed in China; restrictions on US persons’ ability to support China’s semiconductor industry; and modifications to the Entity List and Unverified Users List. Of note, restrictions on semiconductor equipment were set at relatively low-tech
thresholds (i.e. old generations), illustration the US’ attempt to shift from a ‘sliding scale’ approach, to one where they aim
to maintain ‘as large a lead as possible’.

Global economic data

US regional surveys (Philadelphia -8.7%, Empire -9.1%) were on the weak side however September’s industrial production
data surprised positively (production was up 5.3% y-o-y). Regarding the housing market, NAHB homebuilder sentiment slumped to 38 from 46 prior. Home sales were down 23.8% y-o-y in September. Mortgage rates rose to a new high of 7.3% according to Bankrate.com data. UK real retail sales (excl. gas) were down 6.2% y-o-y in Sept. (from -5.3% in Aug.). CPI inflation accelerated to 10.1% y-o-y, from 9.9% in August. Germany ZEW expectations survey increased slightly in October to -59.2, better than expected. Relief packages as well as economic policies are helping to slightly stabilize future expectations. However, the “current situation survey” declined due to the overall economic situation worsening.

What to watch

• Monday: US ISM manuf. index (Apr.)
• Tuesday: Australia RBA decision (May); Euro area: final PMIs, M3 (Mar.), Bank Lending Survey (Q1), flash HICP (Apr.); US durable goods (Mar.)
• Wednesday: US FOMC decision (May); US ISM non-manufacturing index (Apr.)
• Thursday: Norway Norges Bank decision (May); Euro area ECB decision (May); US trade balance (Mar.)
• Friday: Germany factory orders (Mar.); US: nonfarm payrolls (Apr.)