Equities continue to look for guidance but face overall headwinds as hopes for swift rate cuts by the US Federal Reserve diminish even after hawkish comments from Minneapolis Fed President Neel Kashkari. The USD rose sharply against its peers, trimming recent losses.
The Stoxx 600 closed in the red and the Russell 2000, the best performing US index of the previous week, also lost more than 1% on Monday. Further signs of fears that interest rate cuts are still a long way off, or even that rate hikes are still on the table, can also be seen in yields, which rose sharply yesterday, and in falling oil and gold prices. The price of WTI crude oil fell below $80/barrel for the first time in more than two months.
Fed Chairman Kashkari said in an interview on Fox News on Monday that it was too early to declare victory over inflation. He added that inflation data over the past three months, while promising, is not enough. He added that over-tightening monetary policy is preferable to doing too little, and that he’s concerned that inflation could tick up again.
The RBA has tightened its monetary policy again and raised its inflation forecast, a sign that other central banks are not necessarily done raising interest rates either. In contrast, the Bank of England's chief economist Huw Pill hinted that rate cuts could be on the table by mid-2024 – but as always, central banks will wait for more data. German industrial production remains worrying and suggests that a recession is not far away.
In individual stocks, oil producers dragged down European equity indices, with UK oil and gas giants Shell and BP down more than 1%. Saudi Aramco's third quarter profits fell 23%, but overall sales were better than expected.
UBS Group was up as much as 5% after reporting an unexpectedly large inflow of client money into its wealth management business, showing the resilience of the banking sector.
We see only few important economic data but expect that additional comments from Fed officials to be more on the hawkish side. The risk of profit taking in the equity market is increasing. We see both “small”-cap stocks and most equities falling. The current robust US futures are due to the fact that the big tech companies in particular have been able to hold on to last week's gains – if they give way, profit-taking could accelerate.
The sharp fall in commodity prices is a clear sign of deteriorating risk sentiment and rising expectations of continued economic / consumption weakness.
👁 ROB'S MARKET OVERVIEW:
November 7, 2023
🇺🇸 US Markets ➡️/↘️
Cyclical Stocks ➡️/↘️
Tech/Growth Stocks ↕️/↘️
Financial Stocks ➡️
Defensive Stocks ➡️/↘️
Energy Stocks ↘️
Materials Stocks ↘️
USD ➡️/↗️ (still benefiting from last week's weakness in USD & JPY, upside limited)
EUR, GBP, JPY ➡️/↘️
CAD ↘️ (oil & gas prices extend losses)
AUD ↘️ (sharp decline despite RBA rate hike, worsening risk sentiment, weaker commodity prices)
⚒ Commodity Markets ↘️
Oil prices ↘️
Natural Gas prices ↘️
Metal prices ↘️
Gold ↘️/➡️ (finding some support $1,955 – $1,960 on safe haven demand)
⚡️Cryptos ↘️ (losing some of recent gains as dovish hopes are fading; worsened risk sentiment)
(*↗️ bullish, ↘️ bearish, ➡️ sideways / stable, ↕️ mixed / volatile)