After sharp losses in September driven by concerns that the Fed may raise interest rates further that pushed some equities into oversold territory, global equities continue to rally.
Expectations of further tightening and longer-lasting rate hikes have pushed bond yields to levels last seen during the 2007-08 financial crisis. The recent recovery rally in stocks and bonds was triggered primarily by the fact that bond yields (especially U.S. Treasuries) have fallen again.
In particular, dovish voices from Fed officials, who saw the recent rise in yields as another factor in tightening monetary conditions, helped the bond market recover and yields fall back from their 16-year highs.
Yesterday's hot U.S. PPI data sparked some concern and turbulence, but was dismissed in the face of further evidence that the Fed believes rates are already high enough to continue disinflation. However, this view will be put to the test today, as key data on US consumer inflation will be released in a few minutes (12:30 UTC+0).
We do not expect a big surprise from the U.S. consumer price data, and even if the data is slightly higher than expected, investors will take into account the higher energy prices (in September) and especially the recent dovish statements (again). Governor Christopher Waller noted, for example, that the Fed may wait to see what happens before taking further action on interest rates as financial markets have tightened.
Moreover, another rate hike is likely to have little overall impact, implying that the Fed has already completed its rate hike campaign or is on the verge of doing so.
Wall Street is also receiving tailwinds today from a strong performance of the markets in Asia. Stocks in China and Hong Kong benefited from China's state-owned Central Huijin Investment Ltd. increasing its stake in the country's largest banks for the first time since 2015. Stocks in Europe also performed well – but again, everyone is waiting for U.S. consumption tax data.
More tailwinds are coming from Monday's oil price shock to have cooled, although we see oil prices significantly higher today on China optimism. The energy sector was oversold, especially yesterday – we took advantage of that by positioning us LONG in ExxonMobil near yesterday's bottom – a perfect trade.
Gold and other interest rate sensitive assets will continue to benefit from the renewed cooling in yields. While the USD remains in demand in theory, rapidly falling US Treasury yields will provide some headwinds for the greenback.
👁 ROB'S MARKET OVERVIEW:
⚠️ All eyes on US CPI data – we don't expect a “hot surprise” and instead yields to continue to slide lower
October 12, 2023
🇺🇸 US Markets ↕️/↗️ (gains continue if US CPI don't come in hotter-than-expected; Dovish comments from Fed officials provide tailwinds to stocks and bonds = falling yields).
Cyclical Stocks ↕️/↗️
Tech/Growth Stocks ↗️
Financial Stocks ➡️/↗️
Defensive Stocks ➡️/↗️
Energy Stocks ↗️ (rebound after yesterday's overselling)
Materials Stocks ↗️ (benefiting from some China optimism)
EUR, CHF, CAD ➡️/↗️
GBP, JPY, AUD ➡️
USD ➡️/↘️ (USD pressured by falling US Treasury yields)
⚒ Commodity Markets ↕️
Oil prices ↗️/➡️ (rebounding from oversold conditions – then sideways movement)
Natural Gas prices ↕️/↘️ (after massive gains of European gas prices – we see correction ongoing)
Metal prices ➡️/↗️ (benefiting from some China optimism)
Gold ↗️ (benefiting from falling yields)
⚡️Cryptos ➡️/↗️ (benefiting from falling yields; cryptos remain unattractive)
(*↗️ bullish, ↘️ bearish, ➡️ sideways / stable, ↕️ mixed / volatile)