The bond sell-off continues, pushing the key 10-year yield to a nine-month high, putting pressure on risk assets in particular and extending the USD's uptrend. Investors are increasingly concerned about rising borrowing costs. The Bank of England raised its key interest rate by 25 basis points, as expected.
GBP has fallen recently on expectations that the BoE has little room for further rate hikes. As we expected, the Bank of England warned that inflation is still too high and that monetary policy will remain tight (for longer), but expressed optimism that disinflation will continue. GBP should see some support soon, with further rate hikes by the BoE not off the table in my opinion.
Most investors/analysts believe that yesterday's downgrade by Fitch was the driving factor for the sell-off – but it was not. Instead, stocks in New York are expensive after the record rally in the first half of the year, especially the Nasdaq. So concerns about yields/interest rates (= borrowing costs) continuing to rise weigh heavily – as do signs of a slowdown in corporate earnings.
Chip companies in particular gave rather disappointing sales forecasts – today the German chip company Infineon and yesterday Qualcomm after AMD's unimpressive outlook. PayPal also disappointed yesterday. Concerns about growth stocks are clearly visible, as even Shopify, which delivered a very positive earnings report, is trading lower in pre-market U.S. trading.
Interest rate sensitive tech stocks in particular will continue to fall, including chip stocks, software companies, etc. Big tech remains more resilient – but investors will know more after the close when Apple and Amazon report earnings.
We also see headwinds for commodity prices as risk sentiment worsens. Oil prices have fallen first, but remain supported and overall bullish due to clear signs of supply tightening. The energy sector could become increasingly supported despite the general sell-off as demand for oil (and gas, fuel) continues and we expect prices to rise further.
👁 ROB'S MARKET OVERVIEW:
August 3, 2023
🇺🇸 US Markets ➡️/↘️
Cyclical Stocks ➡️/↘️
Tech/Growth Stocks ↘️
Financial Stocks ↘️
Defensive Stocks ➡️
Energy Stocks ➡️/↗️
Materials Stocks ↘️
💱 Forex
JPY ↗️ (recovery gains, bond yields want to rise further – BoJ still limits it)
CHF ➡️/↗️
USD ➡️/↗️ (remains in demand; increased safe haven demand & rising Treasury yields)
GBP ➡️ (stabilize after more selling before BoE decision)
EUR, CAD ➡️
AUD ➡️/↘️ (risk-off mood; lower commodity prices)
⚒ Commodity Markets ↕️
Oil prices ➡️/↗️ (oil market remains tight)
Natural Gas prices ➡️/↗️
Metal prices ↘️
Precious Metal prices ↕️ (increased safe haven demand, but yields rise putting pressure on gold)
⚡️Cryptos ➡️/↘️ (risk-off mood; higher bond yields weigh)
(*↗️ bullish, ↘️ bearish, ➡️ sideways / stable, ↕️ mixed / volatile)
Yours, Robert
