Market sentiment remains poor and the sell-off in stocks and bonds is widening as investors, as well as analysts, become increasingly concerned about the long-term impact of historically high borrowing costs. Major investment banks, including Goldman Sachs, Morgan Stanley and JPMorgan Chase, are warning that the risk of further stock market declines is high / rising.
We see the market now pricing in a nearly 33% probability of a November rate hike – up from just 25% in the previous session.
The sell-off in Treasuries (US bonds) this week came after U.S. lawmakers succeeded in averting a government shutdown, prompting traders to bet more on the Fed's ability to raise rates in November. Hawkish comments from Cleveland Fed President Loretta Mester and Fed Governor Michelle Bowman reinforced that view. Mester said another rate hike is likely, and Bowman even said multiple hikes will be necessary.
This week's economic data, particularly labor market data, could provide further clues as to whether the Fed sees continued room for more rate hikes. With yields higher than they have been since 2007, equities are becoming less attractive, especially with valuations still historically high.
Rising yields also continue to drive the USD higher, weighing on other risk assets such as commodities but also gold. The USD broke through key levels against the EUR and GBP and is trading near 150,000 yen per dollar. The strong USD and concerns about high interest rates have also weighed on oil prices, which are now seeing some support as investors expect the WTI price to remain above $90/barrel for most of the fourth quarter.
👁 ROB'S MARKET OVERVIEW:
October 03, 2023
🇨🇳🇰🇷 Chinese/Korean markets remained closed for holiday
🇺🇸 US Markets ↕️/↘️ (markets remain volatile but the ongoing rising yields make it hard for stocks to find a bottom)
Cyclical Stocks ↕️/↘️
Tech/Growth Stocks ↘️ (lower after unjustified gains yesterday of big tech yesterday)
Financial Stocks ↘️
Defensive Stocks ➡️
Energy Stocks ↕️ (still headwinds on energy prices due to strong USD; energy already oversold)
Materials Stocks ↘️ (headwinds on commodity prices due to strong USD)
USD ↗️ (USD remains in demand due to rising yields, worsening risk sentiment)
EUR, GBP, JPY ➡️
CAD, CHF ↘️/➡️
⚒ Commodity Markets ↕️/↘️
Oil prices ↕️ (remains bearish – but downside limited – remains near $90 WTI / $92 Brent )
Natural Gas prices ↕️
Metal prices ↕️/↘️ (headwinds from strong USD)
Precious Metal prices ➡️/↘️ (headwinds from strong USD, high yields)
⚡️Cryptos ↕️/↘️ (headwinds from strong USD, high yields)
(*↗️ bullish, ↘️ bearish, ➡️ sideways / stable, ↕️ mixed / volatile)