In pre-market trading in Europe and the U.S., equity markets continued their recent rally after comments from U.S. Federal Reserve officials that were seen as “dovish.” Hopes of further Chinese stimulus measures to support the still-struggling economic recovery also helped risk appetite return, especially in Europe – although mainland Chinese markets closed in the red for a second day after being closed throughout the previous week for Golden Week.
Stocks in the U.S., on the other hand, are little changed after a positive performance on Monday – Chinese stocks in the U.S., such as Alibaba and JD, are trading higher.
Stocks were also supported by U.S. Treasuries gaining (leading to lower yields) after catching up with the rally in global Treasuries on Monday, when cash trading in the U.S. was closed. However, yields have already risen from session lows. The USD remains stable after volatile trading in recent days and an overall negative performance – despite increased demand for safe havens. Hopes for further dovish signals from the Fed are also the main driver in the currency markets.
However, an escalation of tensions in the Middle East remains a major risk for the markets, which could also help oil prices to rise again after the sharp losses at the end of September. Israel has mobilized its forces near Gaza, and questions are being raised about Iran's role in the bloody incursion. Rising geopolitical concerns and slowing global economic growth will keep stock market gains in check. The IMF expects the recession in Germany to be worse than its forecast from July – he IMF expects the German economy to shrink by 0.5% (instead of -0.3%).
The current upturn is certainly surprising given the general uncertainty. We see that the markets are very much focused on the Fed's interest rate forecast – an issue that is more important to Wall Street than anything else. As a result, the focus will be on what else Fed officials have to say. Fed representatives Raphael Bostic, Christopher Waller, Neel Kashkari and Mary Daly will have their say throughout the day. ECB President Lagarde is optimistic that inflation in the Eurozone will continue to decline – which seems likely given poor consumer sentiment and PMI readings showing weakness in the services sector and strong weakness in manufacturing.
Uncertainties are too great to expect a sustained rally. However, dovish signals could extend recent gains. Investors seem eager to push stock prices back up, despite the many macroeconomic and geopolitical headwinds.
Oil prices appear to be stabilizing, and the impact of the conflict between Hamas and Israel on oil markets may be limited for now. However, further escalation – which is likely – will raise supply concerns again. I see oil prices continuing to rise in the coming sessions/weeks. Gold can only extend recent gains if Treasury yields slide further – gold overall remains relatively unattractive against high bond yields.
👁 ROB'S MARKET OVERVIEW:
October 10, 2023
🇺🇸 US Markets ↕️ (very mixed – further dovish Fed comments could cause buying; Upside potential limited)
Cyclical Stocks ↕️
Tech/Growth Stocks ➡️/↘️
Financial Stocks ➡️/↗️
Defensive Stocks ➡️/↗️
Energy Stocks ➡️
Materials Stocks ↗️/↕️ (benefiting from hopes of more CN-stimulus, but industrial metal show little signs of rising)
CHF, CAD ➡️
GBP, JPY, AUD ➡️/↘️
⚒ Commodity Markets ↕️
Oil prices ➡️ (searching for more impulse, soaring natural gas prices support oil)
Natural Gas prices ↕️/↗️
Metal prices ↕️ (benefiting from hopes of more CN-stimulus)
Gold ➡️ (further gains limited after safe haven demand boost)
⚡️Cryptos ➡️/↘️ (cryptos remain unattractive)
(*↗️ bullish, ↘️ bearish, ➡️ sideways / stable, ↕️ mixed / volatile)