Global markets have been in turmoil since September and under intense pressure from rising expectations that the Fed will keep current interest rates much longer or even raise them one more time before the end of the year.
These concerns have gradually increased in recent trading days, pushing yields to new 16-year highs. We are now seeing a short-term correction with yields falling in response to the weak ADP jobs data. However, ADP data has been unreliable of late, so investors will remain cautious and not overstate the importance of the ADP numbers – especially ahead of the NFP data on Friday. According to ADP, private-sector payrolls rose 89,000 last month after increasing 180,000 in August – analysts had expected private-sector employment to rise 153,000.
Even before the release of the ADP data, some investors took advantage of yesterday's broad selling in stocks and bought dips which will help Wall Street to open positively today. Europe opened very weak, with the DAX trading below 15000 points for the first time since March. Asian markets closed lower – the sell-off in Japan and Korea was particularly strong. Chinese (mainland) markets remain closed – the Hang Seng extended its recent losses.
We will continue to see high volatility, and general concerns about current and future rates as well as yields that are at a 16-year high, will continue to put pressure on equity markets. Markets are projecting a nearly 33% probability of a November rate hike and are 50/50 for a rate hike before the end of the year (including the Fed's December rate decision) – not a significant change from yesterday.
We also see that the USD has given back some of the strong recent gains that have taken the USD to levels last seen in November 2022. However, combined with yesterday's hawkish comments from the Fed, it is unlikely that investors will favor the GBP or EUR (or any other currency) over the USD anytime soon. The JPY experienced some support from rising expectations that the Bank of Japan will announce some action to stop the JPY weakening further.
I expect some dip buying today and then mostly sideways movement. We may hear more hawkish statements from Fed officials in the next 48 hours. The chaos in the US House of Representatives should be contained for now, but concerns about the shutdown will increase in the coming weeks.
A weaker USD will also help commodities to stabilize temporarily.
👁 ROB'S MARKET OVERVIEW:
October 04, 2023
🇨🇳 (Mainland) Chinese markets remained closed for holiday
🇺🇸 US Markets ↗️/↕️ (early gains with high volatility – likely hitting profit taking waves)
Cyclical Stocks ↗️/↕️
Tech/Growth Stocks ↗️/↕️
Financial Stocks ↗️/➡️ (temporary gains – then stabilization)
Defensive Stocks ➡️/↗️
Energy Stocks ↘️/↗️ (opening lower – then recovering)
Materials Stocks ➡️/↘️
EUR, GBP, AUD, CHF ↗️/➡️ (Rebounding after recent losses; Upside limited)
CAD ↘️/↗️ (opening weak, then recovering)
USD ↘️/➡️ (Given back some of recent gains; Then stabilizing)
JPY ↕️ (volatile on expectations BoJ will soon “act” – JPY remains weak)
⚒ Commodity Markets ↕️
Oil prices ↘️/↗️/↕️ (will recover after another round of losses; EIA data in focus)
Natural Gas prices ↕️/↗️
Metal prices ➡️ (benefiting from weaker USD – overall, however upside limited)
Precious Metal prices ↗️/➡️ (benefiting from weaker USD, lower yield – overall, however upside limited)
⚡️Cryptos ➡️ (benefiting from weaker USD; cryptos remain unattractive)
(*↗️ bullish, ↘️ bearish, ➡️ sideways / stable, ↕️ mixed / volatile)