Ahead of Fed Chairman Jerome Powell's highly anticipated speech (14:15 UTC+0), global stocks are edging lower. Other central bankers from the Fed, as well as from central banks in Europe and Australia, have spoken out against the prospect of rapid rate cuts – a message I believe Powell will repeat to dampen the optimism over rate cuts that he himself sparked a week ago (although in combination with weakening US labor market data / signs of slowing economic activity).
However, after a positive performance (so far) in November, particularly on Wall Street and in interest rate sensitive stocks (especially in the technology sector), we see stocks holding their recent gains for now. US equity futures are moving sideways, as is most of the market ahead of Powell's speech (starting at 14:15 UTC+0).
We see stocks continuing to react strongly to Treasury yields. After yesterday's drop in yields, which helped yield-sensitive equities to make further gains, we currently see US Treasury yields slightly higher, but little changed overall.
However, there are increasing signs that investors are expecting the economy to remain weak and economic growth to be slow: The decline in oil prices gained further momentum, sending West Texas Intermediate crude futures below $77, a three-month low. Other commodity prices are also mostly lower, with Chinese markets (and economic activity) also set to remain a negative factor. Although oil is short-term oversold – we will continue to see profit taking after short-term recovery attempts.
We see the USD continuing to rise – now for the third day in a row. Even yesterday, as US Treasury yields fell, the USD held on to its gains from Monday.
Not only will Powell give a speech today, but also other Fed officials will comment about the monetary policy and current macro conditions. Meanwhile, Federal Reserve Governor Lisa Cook said that geopolitical tensions could have a negative impact, including higher inflation. Next up are Powell and New York Fed President John Williams. I strongly expect them to join the other policymakers in downplaying the likelihood of monetary easing (rate cuts) – the only question is how vigorously they will try to push back rate cut optimism and whether they will be successful.
Given that the Fed will be trying to avoid a continuation of the stock market rally that has already led to an easing of financial conditions, I expect Powell to try to make it clear that rates will likely stay “higher-for-longer” and that the Fed is willing to raise rates further. If he is successful, the current longest winning streak (for the S&P 500 and Nasdaq 100) since 2 years will end today.
We see that stocks are already way overbought, which also increases the risk of heavy profit taking. I expect the Fed or Powell to be successful in lowering dovish expectations (at least in the short term).
👁 ROB'S MARKET OVERVIEW:
November 8, 2023
🇺🇸 US Markets ➡️/↘️ (if Powell successfully dampens dovish/rate cut hopes)
Cyclical Stocks ➡️/↘️ (if Powell successfully dampens dovish/rate cut hopes)
Tech/Growth Stocks ↕️/↘️ (if Powell successfully dampens dovish/rate cut hopes)
Financial Stocks ➡️
Defensive Stocks ➡️
Energy Stocks ↘️/➡️ (energy sector oversold – further losses limted)
Materials Stocks ↘️
💱 Forex (movements will be reversed if market doesn't believe Fed's hawkish statements)
USD ↗️
CHF, EUR ➡️
GBP, JPY, AUD, CAD ➡️/↘️
⚒ Commodity Markets ↘️
Oil prices ↘️
Natural Gas prices ↘️
Metal prices ➡️/↘️
Gold ↘️/➡️ (headwinds in case yields rise / gold however still bullish for 2023)
⚡️Cryptos ↘️ (if yields rise / rate cut hopes fade)
(*↗️ bullish, ↘️ bearish, ➡️ sideways / stable, ↕️ mixed / volatile)
Your Robert
