Bonds and stocks continue to fall as poor sentiment intensified in the new year ahead of a raft of data that could show whether bets on rate cuts this year are justified.
US 10-year bond yields rose further to 3.98%, their highest level since mid-December – with Wall Street pointing to a weaker opening for the second trading day of 2024. The USD extended its gains for a fourth day, the most since November. In pre-market US trading, we see losses mainly in growth and interest rate sensitive stocks. The deterioration in risk sentiment and concerns about whether hopes of interest rate cuts have gone too far also caused Bitcoin to fall sharply after an initially strong start to the year.
The current losses are sizable and have been one of the weakest performances for global equities in almost a year and the worst overall start for equities since 1999 – with the losses mostly in interest rate sensitive and generally large and expensively valued growth stocks.
We see a data-heavy week, including the Fed's meeting minutes (which will likely provide little additional insight) and key US labor market data. The market is so overoptimistic that any sign of weakness can trigger a sharp correction – which is what we are seeing now.
Bonds also fell, particularly in the UK (“gilts”), as investors sold long-dated UK government bonds to free up cash before the UK sells new bonds which could have a higher yield. There was also a very weak day of trading in Asia today, with the MSCI Asia Index down 1.2% before the New York Stock Exchange opened, its biggest fall since November. Similar to New York, growth/technology stocks in particular were sold off heavily.
Rising volatility is another sign that the market is becoming more nervous. While we are currently seeing an overreaction, risk-sensitive assets are likely to continue to face profit-taking. Part of the profit taking is also due to investors bringing their profits home to pay taxes (in the US).
As long as the correction in bonds continues, the USD will remain supported and riskier assets (and currencies) will come under pressure. Gold will not benefit from this, as higher yields increase the opportunity cost of gold.
👁 ROB'S MARKET OVERVIEW:
January 03, 2024
🌐/🇺🇸 Global/US Markets ↘️/➡️/↘️ (we expect further losses. Initial stabilizing markets will likely remain bearish head of more important data later this week)
Cyclical Stocks ↘️
Tech/Growth Stocks ↘️
Financial Stocks ➡️
Defensive Stocks ↘️/➡️
Energy Stocks ➡️/↘️ (slightly negative opening – further losses ahead as energy prices remain weak)
Materials Stocks ↘️
💱 Forex
USD ↗️ (remains bullish as longs as bonds continue correction / there is more room for a correction and yields to rebound)
GBP, EUR ↗️/➡️ (rising from oversold conditions and as Eurozone / UK bond yields also rise)
JPY, CHF ↘️/➡️ (under pressure from rising yields of non-Japanese, non-Swiss bonds)
CAD ↘️/➡️
AUD ↘️
⚒ Commodity Markets ↘️ (remain under pressure from higher yields / stronger USD / worsened risk sentiment)
Oil prices ↘️
Natural Gas prices ↘️
Metal prices ↘️
Gold ↘️
⚡️Cryptos ↘️/↕️
(*↗️ bullish, ↘️ bearish, ➡️ sideways / stable, ↕️ mixed / volatile)
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