We see that equity markets in Europe and the US (pre-market) have calmed down at the start of the new week and bonds have fallen (yields are rising). However, investors remain cautious as they await further developments in the Middle East and the recent earnings season is in full swing, possibly showing that earnings growth has slowed.
Markets remain in a difficult situation as the flight to safety will help bonds rally and yields fall. Falling yields usually support equity markets – but this time for the wrong reasons, as investors flee to safety. Stocks are actually vulnerable to worsening macroeconomic headwinds. To recover and create the year-end rally most analysts expect, stocks would need more dovish Fedspeak.
Yields on 10-year bonds rose 5.5 to 7 basis points, reversing some of last week's 19 basis point decline, while yields on 30-year bonds rose 10 basis points. Gold and oil prices held most of last week's (Friday's) gains.
Apple is under a bit of pressure due to a report that iPhone sales may have slowed. Semiconductor stocks in Europe and the U.S. performed poorly after reports that Washington plans to close loopholes in rules that limit China's access to advanced semiconductors and chipmaking equipment. With Apple and chip stocks under pressure, it will be difficult for the Nasdaq to rise significantly.
Asian markets closed lower again despite the Chinese central bank's largest medium-term liquidity injection since 2020, leaving the benchmark interest rate unchanged at 2.5%.
European equity markets are flat but remain under pressure, with Polish stocks (both equities and the złoty) a strong outlier, up 5.5%, as a bloc of pro-European opposition parties is on track to unseat the nationalist government after Sunday's elections.
Uncertainty is too high to expect a sustained recovery – we expect gains in risk and interest rate sensitive assets to lead to profit taking. At the same time, we are likely to see mixed markets, with financials still benefiting from Friday's strong bank gains. The energy sector (+materials) also still has room to recover from recent sharp losses. There is also a risk that Fed members will revert to a hawkish stance or “words” in light of strong U.S. economic data, a robust U.S. labor market, and stubborn inflation data.
👁 ROB'S MARKET OVERVIEW:
October 16, 2023
🇺🇸 US Markets ↗️/↕️ (early gains will hit profit taking, market mixed)
Cyclical Stocks ↗️/↕️
Tech/Growth Stocks ↗️/↕️/↘️
Financial Stocks ↗️/➡️ (benefiting from strong bank earnings)
Defensive Stocks ➡️/↗️
Energy Stocks ↗️ (rebound after recent overselling – benefiting from higher oil prices)
Materials Stocks ↗️ (Recovering after recent overselling – benefiting from higher industrial metals prices & China stimulus)
AUD, CAD ↗️ (benefiting from higher oil & gas, metal prices)
EUR, GBP ↗️/➡️
CHF, JPY ➡️
USD ↘️/➡️ (stabilizing with safe haven demand returning)
⚒ Commodity Markets ↕️
Oil prices ↕️/↗️ (rising on any further signs of escalation in Middle East – likely to happen)
Natural Gas prices ↕️/↘️ (still headwinds after last week's overbuying)
Metal prices ↗️
Gold ↘️/➡️ (headwinds from higher yields / stabilizing with safe haven demand returning, yields falling)
⚡️Cryptos ↕️/↗️ (benefiting from improved risk sentiment; cryptos remain unattractive)
(*↗️ bullish, ↘️ bearish, ➡️ sideways / stable, ↕️ mixed / volatile)