Typical safe-haven assets such as gold and bonds are rising as there are clear signs that Israel is preparing a ground invasion of Gaza. The escalating Israel-Gaza situation could increase tensions in the region, which has also caused oil prices to spike. Rising bond demand and yesterday's overreaction to CPI data and on lower-than-expected demand for 30-year government bonds, caused bond yields to fall sharply today, providing a tailwind for yield-sensitive equities. European bonds also gained, with the German 10-year yield falling 7 basis points.
However, global equity markets were mixed overall. Asian markets closed sharply lower, but also got some bad news from Wall Street yesterday.
An escalation of the war between Israel and Hamas, which could also involve Iran, is a scenario that is not priced in – but if tensions rise, safe haven demand could continue to surge, as could oil prices. If oil prices rise again, I don't think stocks will be able to maintain their current (too high) levels.
Meanwhile, the prospect of higher U.S. interest rates also weighed on risk appetite after yesterday's CPI report came in slightly above expectations. Swap contracts pushed the probability of another rate hike by the Federal Reserve up 25 basis points to around 40% – up from 30% on Wednesday.
I expect safe haven demand to continue to rise toward the end of today's / this week's trading, benefiting gold and bonds in particular (which will drive yields lower). It remains a strange scenario as equities benefit from falling (but still high) yields while uncertainties increase and the economic outlook does not improve.
On a positive note, Wall Street banks have started the Q3/2023 earnings season on a positive note: JPMorgan, Citigroup and Wells Fargo rose in pre-market trading after earnings increases.
We see a very fragile market with stocks only getting a tailwind from falling yields. Rising safe haven demand will support the USD even as U.S. Treasury yields fall.
👁 ROB'S MARKET OVERVIEW:
October 13, 2023
🇺🇸 US Markets ↗️/↕️/↘️ (We expect markets first to benefit from falling yields but a sell-off in the second half of trading)
Cyclical Stocks ↗️/↘️
Tech/Growth Stocks ➡️/↗️/↘️
Financial Stocks ↗️/➡️ (rising from strong earnings reports – but gains limited)
Defensive Stocks ➡️/↗️
Energy Stocks ↗️ (rebound after yesterday's overselling)
Materials Stocks ➡️ (headwinds limited due to hopes of more CN-stimulus)
CHF, JPY ➡️/↗️
AUD, GBP, EUR ↗️/➡️/↘️
USD ↘️/➡️/↗️ (first headwinds from falling yields / gains in late US trading)
⚒ Commodity Markets ↕️
Oil prices ↗️ (rising on supply disruption concerns)
Natural Gas prices ↕️/↘️
Metal prices ↕️/↗️ (benefiting from hopes of more China stimulus)
Gold ↗️ (benefiting from falling yields and safe haven demand)
⚡️Cryptos ➡️/↗️ (benefiting from falling yields; cryptos remain unattractive)
(*↗️ bullish, ↘️ bearish, ➡️ sideways / stable, ↕️ mixed / volatile)