Finanze® Daily Digest - 14/09/2022

The Brief: Wall Street reacted swiftly when US inflation figures were released as 99% of the S&P 500’s companies tumbled. The stock index dropped 4.3% while the Nasdaq Composite followed suit with a 5.2% plunge. US consumer prices rose 8.3% year over year in August but is 20 basis points lower than the previous month. The rate, however, was higher than the 8.1% forecast by industry analysts. The report follows Monday’s report on UK’s GDP hike by 0.2% in July, following a sharp 0.6% nosedive in June. US and UK households continue to find ways to cope with soaring living costs as the coming winter will most likely impact both economies negatively.

Why It Matters: A slowdown in the US economy will have a direct impact on trade activity with its trade partners. The UK, for instance, has exported £359 million worth of automobiles in June 2022 to the US aside from refined petroleum, gas turbines and packaged medicaments. On the other hand, the UK has imported crude petroleum and gold from the US in the same period. The volatility in the US stock market sends signals to other economies about the growth prospects of its firms, especially multinational companies that make up an estimated 85% of the S&P 500’s stock market capitalisation. Furthermore, around 17% of US consumer spending is allocated to imported goods.

Finanze® Foresights: Historically, Fed rate hikes do not translate to long-term impacts on the stock market. However, it can send traders on a short-term selling frenzy similar to what happened yesterday as they anticipate a highly possible monetary tightening. Like most economies, the UK can be sensitive to global prices and Wall Street activity can have spillover effects to it as well. As most central banks are bracing for eventual interest hikes, they cannot be overly aggressive in raising rates or else this may dampen consumer demand too much.

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