Hey Folks, the Bulls were clearly in charge this week. Are the markets now ready to put interest rate hikes behind us and move forward in a more constructive and bullish manner. Get my take in the markets in this week’s round-up.
WEEKLY SOUND BITES:
US indexes finished its strongest weekly gain in nearly a year, three items are credited with giving the bulls a strong lift; first was the reduced treasury issuance which bond markets interpreted as a sign to move rates lower; second was a more dovish Fed signaling a willingness to not be biased towards another rate hike and finally the weakening jobs report this past Friday. All of which combined to give the markets a solid kick in the pants. This in turn led to a sharp decrease in longer duration bond yields. It was the second-busiest week of the earnings season.
A primary driver of sentiment appeared to be the Fed’s policy meeting that concluded Wednesday. The Fed left rates steady, as was widely expected, but investors appeared encouraged by the post-meeting statement, which signaled that the recent runup in long-term Treasury yields had achieved some of policymakers’ intended tightening in financial conditions. Friday’s closely watched payrolls report seemed to confirm that the labor market was cooling, with wage pressures hopefully—in the eyes of investors, at least—soon to follow.
Employers added 150,000 jobs in October, below expectations and the lowest level since June, and September’s strong gain was revised lower. Meanwhile, the unemployment rate rose to 3.9%, its highest level since January 2022. The 12-month gain fell to 4.1%, its lowest level in over two years but still above the roughly 3% level that policymakers are often believed to consider compatible with their overall inflation target of 2%.
A final factor boosting overall market sentiment appeared to be the U.S. Treasury’s announcement that it would sell USD 112 billion of longer-term securities at its quarterly refunding auctions the following week, slightly below its original projection of USD 114 billion. The above factors combined to result in a plunge in long-term Treasury yields over the week, with the yield on the benchmark 10-year U.S. Treasury note tumbling from 4.88% to an intraday low on Friday of around 4.48%, its lowest level since late September.
Over in the U.K., the BOE held interest rates at a 15-year high of 5.25% for the second consecutive meeting but warned that rates would have to stay at a restrictive level for “an extended period of time.” Meanwhile, inflation in the eurozone slowed more than expected to an annual rate of 2.9% in October—its lowest level since July 2021—from 4.3% in September. The slowdown probably reflected weaker economic growth as the GDP contracted 0.1% sequentially in Q3.
The BoJ remained committed to its ultra-loose monetary policy stance at its October meeting, leaving its short-term lending rate unchanged at -0.1%. They also adjusted its yield curve control framework for the second time in three months to allow yields to rise more freely—it will now regard its 1.0% ceiling for 10-year Japanese government bonds. Japan’s government announced a new fiscal stimulus package worth more than USD 110 billion, aimed at boosting growth and helping households cope with the rising cost of living.
China’s factory activity returned to contraction in October. The official manufacturing Purchasing Managers’ Index (PMI) fell to a below-consensus 49.5 in October, down from 50.2 in September, as production growth slowed. New home sales by the country’s top 100 developers fell 27.5% in October from a year earlier, easing from the 29.2% drop in September. According to S&P Global Ratings, under a bear case scenario, China’s GDP growth could slow to as low as 2.9% next year as property sales fall as much as 25% from 2022.
Enjoy this week’s round-up.
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