It seems like we are heading into a rather gloomy autumn. It’s also a rather different environment to the last monthly recap from July. The summer stock market rally has rolled over with major indices looking decidedly weaker. This comes as we head into the traditionally downbeat seasonal months for risky assets.

The perceived dovish “pivot” by Chair Powell was scotched at Jackson Hole after markets realised they had been premature in hoping the Fed was slowing down on its hiking path. Numerous officials had spread the mantra about policymaker’s work still “not being done”. Rates hikes are set to continue at the expense of economic growth in order to get inflation nearer to the distant 2% objective. This has boosted king dollar which enjoyed a third month of gains.

The energy shock remained with us, especially in the eurozone where gas prices continued to soar. The increased uncertainty over supplies hit consumer confidence and is likely to impact the ECB’s thinking around inflation which hit record highs and will remain elevated for longer. We note that Germany’s central bank chief warned that price pressures would not subside by 2023. Record energy prices triggered by Russia’s supply squeeze will push the country’s inflation above 10% in the coming months. The ECB hawks have been loud in their desire for a 75bps rate hike. This has kept the single currency meandering around parity towards the end of the month.

Major events of the month, in numbers

*8.5% US CPI: Peak inflation? Markets breathed a huge collective sigh of relief in the wake of the July US inflation data. The headline eased significantly to 8.5% from the prior 9.1% in June. Perhaps more significantly, the month-on-month reading came in flat, ending a 16-month long run of gains. The monthly core reading was the lowest since September 2021. All eyes are on the next CPI update on 13 September which will largely determine the notion of a top in price pressures. That said, the Fed’s policy tightening path will remain in place for a while.

*200-day SMA S&P500: The benchmark blue-chip US equity index hit the widely watched 200-day simple moving average at 4322 and backed off. The 200-day is essentially the average of the last 200 closing prices of the index and is viewed as a momentum indicator. If the index closes above there for an extended period, this would generally be seen as bullish pointing to further gains. But some profit taking is inevitable around such a key psychological level. A more protracted move lower has support at the halfway point of this year’s high to low move at 4227. It is notable that the index has recovered half of the bear market losses. Historically, stocks have never made back to new lows after this has happened.

*10% UK CPI: The UK joined the “club” of countries, mostly in Eastern Europe and emerging markets, with double digit inflation. In fact, it’s going to get worse with the Bank of England expecting 13%+ in the coming months. City economists have grabbed the headlines with forecasts that inflation peaks above 18% in January and 22% next year.  This all highlights the need for policymakers to continue to frontload rate hikes. Whether a looming recession curtails their hiking is a key question. The coming downturn could be as deep as the one in the 1990s which is killing sterling.

*€343 TTF, Europe’s natural gas price: Professional traders often have to zone in on the key market themes of the times. They become experts in a very short space of time in what is driving price action, even if this narrative is completely separate from their usual trading market. The current example is TTF, Europe’s widely watched gas price which hit record highs recently. This has driven strong negative sentiment around the eurozone as Nord Stream maintenance stokes fears about the winter heating season in the region. The euro has been trying to form a base around parity. But long-term energy issues need to be resolved to bolster this price action.