U.S. Treasury yields continued to rise, reducing appetite for equities, as traders reacted to mixed earnings reports, assessed the risks of further escalation in the Middle East, and worried that the Fed will show little signs of cutting rates any time soon.
Yields on U.S. 10-year T-bills rose for a fourth day, approaching 5% for the first time since 2007. This shows that investors are not choosing bonds as a safe haven investment and are instead focusing mainly on gold and oil – even though oil prices have fallen 1% (currently -0.5%) because the U.S. may lift sanctions on Venezuelan oil exports. Yields are also rising due to very robust U.S. economic data – such as recent retail sales or even today's low increase in U.S. jobless claims (just reported). The robust U.S. economy raises expectations that the Fed will keep interest rates higher for longer or possibly tighten monetary policy even further.
U.S. stock futures are trading flat and mixed, seeing headwinds from big tech stock Tesla, which slipped more than 7% in pre-market trading after third-quarter results missed already low expectations. On the positive side, Netflix and SAP ended recent heavy selling and are currently trading higher (Netflix in pre-market trading – currently 12.5% higher). The gains in Netflix appear to be overdone, but we may see more FOMO buying first after the NYSE opens before profit taking kicks in.
U.S. chipmaker Lam Research also took a hit after sales fell for the third straight quarter, a sign that demand for chips remains weak.
As I predicted yesterday (and we traded), the GBP lost all of its recent gains and fell even further as investors don't believe the Bank of England has much room to raise interest rates further given the weak U.K. economy.
Meanwhile, UK Prime Minister Rishi Sunak, United Nations Secretary-General Antonio Guterres and Germany's top diplomat(s) are visiting the Middle East region in an attempt to contain the war between Israel and Hamas. U.S. President Joe Biden said trucks carrying aid such as food are ready to enter Gaza through the Rafah crossing into Egypt.
There is little to suggest that risk sentiment is improving. Risk assets continue to be under pressure from all sides – including many uncertainties, geopolitical risks, but also rising yields / interest rate hike expectations. The USD continues to move sideways, but could get additional lift if Powell scales back dovish expectations. Gold remains in demand, but further rising interest rates are headwinds for gold – for now, however, gold remains the safe haven of choice for most investors.
👁 ROB'S MARKET OVERVIEW:
October 19, 2023
🇺🇸 US Markets ↕️/↘️
Cyclical Stocks ↕️/↘️
Tech/Growth Stocks ↗️/↕️/↘️
Financial Stocks ➡️
Defensive Stocks ➡️/↗️
Energy Stocks ↘️/↗️ (gains in second half unless signs of decreasing escalation risks in Middle East)
Materials Stocks ↘️ (CN property crisis / weak CN markets weigh)
EUR ➡️/↗️ (investors increasingly see EUR undervalued)
CAD ➡️/↗️ (benefit from safe haven demand)
USD ↕️ (in sideways movement with some volatility – benefits from rising yields + safe haven demand)
GBP ➡️/↘️ (increases expectations of no upcoming hike)
AUD ↘️ (weak China / commodity prices weigh)
⚒ Commodity Markets ↕️/↗️
Oil prices ↕️ (remains volatile – has room to rise)
Natural Gas prices ↕️/↘️
Metal prices ↕️/↘️ (CN property crisis / weak CN markets weigh)
⚡️Cryptos ➡️ (cryptos remain unattractive)
(*↗️ bullish, ↘️ bearish, ➡️ sideways / stable, ↕️ mixed / volatile)