We see bond yields to continue their slide following further signs of a weak economy and rapidly cooling inflation in the US and Europe (UK and Eurozone). The stock market rally remains very dependent on whether the rate cut optimism remains intact, as the market is pricing in the likelihood of further rate hikes by the Fed and ECB as close to zero and the Bank of England has also reached the end of its tightening cycle or is close to it.
The stock markets are heading for the longest series of weekly gains since July. Following surprisingly weak UK retail sales, which further lowered expectations for an interest rate hike, European stocks saw a very strong performance. Wall Street is little changed in pre-market trading. Better than expected data on building permits and housing starts in the US have temporarily pushed yields back up, but the overall picture remains – with signs that the global economy is still slowing – now including the US economy and that inflation is cooling rapidly.
The USD is little changed. Oil prices trim sharp losses after falling into the bear market, causing headaches for OPEC+ leaders who want to review their production targets and claim that low oil prices are the result of speculation (which makes little sense). However, oil is certainly oversold on expectations of weak demand – but this is unlikely to be the case despite US crude inventories having increased in recent weeks in the US (fuel inventories have fallen though – indicating rising demand).
Gold has been a big winner as yields have fallen sharply this week. The collapse in yields and the USD shows that investors are pricing in the end of the Fed's rate hike cycle, which has also supported global equities.
The rally will soon come to an end as valuations are very high and earnings growth is likely to fall in the coming quarters. However, the overall gains in recent sessions show that the rally is quite healthy for now and investors are putting money back into the equity market. I believe that the year-end rally can likely continue (but with slower gains) for most of November and the first half of December.
We expect little movement today as economic data is quiet (only UK retail sales were important) and there are no major earnings reports. We are likely to see some more profit taking towards the end of US trading as yields and the USD also trim some of this week's heavy losses. It is possible that non-tech stocks will outperform today – including the energy and commodities sectors which have underperformed strongly recently.
With central banks nearing or at the end of their tightening cycle, we will see a general normalization of currencies against the USD – especially the JPY, but the EUR also has plenty of room to recover.
👁 ROB'S MARKET OVERVIEW:
November 17, 2023
🇺🇸 US Markets ↗️/➡️ (likely slight profit taking towards the end of US trading)
Cyclical Stocks ↗️/➡️
Tech/Growth Stocks ↗️/➡️/↘️
Financial Stocks ➡️/↗️
Defensive Stocks ➡️
Energy Stocks ↗️
EUR, CAD ➡️/↗️
USD ↘️/➡️/↗️ (slightly recovering in final hours of regular trading)
⚒ Commodity Markets ↕️/↗️
Oil prices ↕️/↗️
Natural Gas prices ↕️
Metal prices ↗️/➡️
Gold ↗️/➡️ (Gold remains bullish as outlook for yields bearish / may see some profit taking as yields rise in second half of US trading)
⚡️Cryptos ➡️ (BTC hovering near $36K – $37K)
(*↗️ bullish, ↘️ bearish, ➡️ sideways / stable, ↕️ mixed / volatile)