The global bond sell-off continues, pushing yields higher. U.S. 10-year Treasury bond yields rose 7 basis points 30 minutes before the NYSE opened – the highest level since 2007 – as concerns return about a Fed that has no intention of cutting rates anytime soon.
European stocks have completely given up their initial gains and turned negative. At the start of the new stock market month and quarter, the U.S. government shutdown, averted at the last minute, initially supported prices in Asia, Europe and in early pre-market U.S. trading. But the joy quickly fizzled out. The gains are now being erased minutes before the first trading day of the last quarter of the year – usually a positive quarter.
The risk factors remain intact. U.S. yields are at a 16-year high. Rising yields make stocks less attractive than bonds, but there is also further selling in bonds as the market expects yields to rise further. The recent sharp rise in oil prices also continues to weigh on prices. In the third quarter alone, oil prices rose by a whopping 30%, heightening inflation concerns and limiting central banks' room for interest rate cuts.
Markets were actually expecting a shutdown (myself included) – so there is some relief – but we are seeing the focus now return to high interest rates, hawkish central banking and slowing economic activity.
Expectations for another Fed rate hike in November are rising – currently at about 25%.
Rising yields and expectations that the Fed will maintain its restrictive stance have also boosted the USD, which is again approaching a 12-month high against its peers. Against the yen, the USD hit a new high for the year of 149.82 after the Bank of Japan announced that it would undertake further bond purchases – though these are more words than real action.
We expect a difficult start to October. Investors will be watching closely to see what Fed Chairman Jerome Powell has to say today. We are likely to see more waves of dip buying – which will again be met with profit taking. Equity markets will remain choppy, but rising yields continue to create headwinds.
👁 ROB'S MARKET OVERVIEW:
October 02, 2023
🇨🇳🇭🇰🇰🇷🇮🇳 Many Asian markets remained closed for holiday
🇺🇸 US Markets ↕️/↘️ (markets volatile – likely hawkish Powell to weigh on markets – stocks seeing more dip-buying later today)
Cyclical Stocks ↕️/↘️
Tech/Growth Stocks ↕️/↘️
Financial Stocks ➡️/↘️
Defensive Stocks ➡️
Energy Stocks ➡️/↗️
Materials Stocks ➡️
JPY ↗️/➡️/↘️ (seeing slight technical support; temporary support from BoJ statement – overall remaining bearish)
CHF, CAD ➡️
AUD ↘️/➡️ (on worsened risk sentiment, stronger USD & weaker commodity prices)
EUR, GBP ➡️/↘️ (USD strength weighing on EUR, GBP)
⚒ Commodity Markets ↗️
Oil prices ↕️/↗️ (worsened risk sentiment temporarily weighing; oil remains bullish)
Natural Gas prices ↕️/↘️
Metal prices ↕️/↘️ (headwinds from strong USD, fading optimism)
Precious Metal prices ➡️/↘️ (headwinds from strong USD, high yields)
(*↗️ bullish, ↘️ bearish, ➡️ sideways / stable, ↕️ mixed / volatile)