Global markets continue to look for direction on Thursday, with U.S. equity futures and bonds trading flat/slightly weaker as investors await more labor market data today and especially NFP data on Friday.
After a broadly positive session in New York, supported by falling Treasury yields in response to signs of a softening labor market, we see both US equities and bonds stabilizing today. The USD also remains little changed.
Oil prices continued their slide with WTI trading at $83/barrel – a drop of almost 10% this week. The sharp decline in oil prices and pressure on commodity prices indicate that traders believe that the increasingly deteriorating economic situation will also reduce oil/fuel demand. Gasoline inventories in the U.S. have risen sharply and seasonally, gasoline consumption in the U.S. is at its lowest level in 22 years, according to commodity analysts at JP Morgan – a clear sign of overall declining consumer spending.
Although stock prices have stabilized after recent sharp losses, market sentiment remains fragile after markets moved sharply in recent days on interest rate concerns and the rise in U.S. Treasury bond yields to new 16-year highs.
Weekly U.S. jobless claims will be released in a few minutes (12:30 UTC+0). Overall, however, we see a rather quiet calendar as investors await tomorrow's monthly payrolls report (NFP), which could firm up bets on a November rate hike. Currently, swap markets are projecting a one-in-four chance that the Fed will raise rates next month and are split on a hike before the end of the year.
With high interest rates and yields continuing to rise, and growing signs of an economic slowdown (now in the U.S. as well), stocks have further to fall. Analysts at Barclays wrote in a note that global bonds will continue to fall unless a prolonged slump in equities makes fixed income attractive again. Historically, equities have always fallen before a recession; after the H1/2023 rally, equities are still well in the green this year and the overall valuation (P/E) is rather expensive by historical standards.
We will see mostly sideways movement. Initial jobless claims could extend the slight gains or bring the selloff back. Overall, we see a very cautious sentiment with further gains met with profit taking. We also see sideways movement in the USD index – but unless the Fed takes a less hawkish stance, the USD remains king.
👁 ROB'S MARKET OVERVIEW:
October 05, 2023
🇨🇳 (Mainland) Chinese markets remained closed for holiday
🇺🇸 US Markets ↕️ (signs of further weakness in US labor market would extend yesterday's temporary recovery – decreasing volatility in second half and mostly sideways movement ➡️)
Cyclical Stocks ↕️
Tech/Growth Stocks ↕️ (big tech stronger than smaller-cap tech stocks)
Financial Stocks ➡️
Defensive Stocks ➡️
Energy Stocks ↘️/➡️ (weak oil prices to further weigh on energy – energy oversold)
Materials Stocks ➡️/↘️
EUR, GBP, AUD ↗️/➡️ (early gains – then sideways – USD driven)
CHF, JPY ➡️
USD ➡️ (mostly sideways; weak labor data would weaken USD, resilient labor data support USD)
CAD ➡️/↘️ (weak oil prices)
⚒ Commodity Markets ↕️
Oil prices ↘️/➡️ (after sharp losses, stabilizing prices, upside limited after panic selling)
Natural Gas prices ↕️/↗️
Metal prices ➡️
Gold ➡️ (weak labor data would support gold, resilient labor data weigh on gold)
(*↗️ bullish, ↘️ bearish, ➡️ sideways / stable, ↕️ mixed / volatile)