Hey Folks, as a reminder for most of you this weekend we turn our clocks back 1-hour Sunday at 2 am. And speaking of turning back things, in this past week’s markets we had another instance of the FED Press Conference setting the market price action for a large pullback. Get my take in this week’s round-up.
WEEKLY SOUND BITES:
- Stocks fell after the Federal Reserve dashed market hopes for an impending pivot in monetary policy in the form of a pause or slower pace of rate hikes. Tech stocks suffered as the fallout from a largely disappointing earnings season for bellwethers such as Facebook parent Meta Platforms, Amazon.com, and Microsoft continued. Late in the week, Amazon.com announced that it was pausing its corporate workforce hiring, further dampening sentiment. After this week the FEDs are no longer a friend of the markets.
- Stocks wavered after the October employment report painted a mixed picture of the labor market. The Labor Department report showed that employers added 261,000 jobs to nonfarm payrolls, above consensus estimates, and revised its September jobs figure higher. However, the unemployment rate rose to 3.7% from 3.5% in September as the labor force participation rate moved slightly lower. Also note the FEDs consider a neutral unemployment rate is 4.25% so we have a way to go. U.S. Treasury yields increased through most of the week, with short-term rates climbing more than yields on long-maturity bonds. The two-year U.S. Treasury note yield reached a 15-year high above 4.75% on Friday morning.
- Wednesday’s FOMC announcement and Fed Chair Jerome “Power Ranger Boom Boom” Powell’s post-meeting press conference were the focus of the week. As was widely expected, the committee said that it was raising rates by 75 bps. “Boom Boom” Powell’s press conference took a hawkish turn when he said that the FOMC revised its estimate of their terminal rate (the highest federal funds rate in the hiking cycle) up from its September projections, and he referred to the pace of hikes not being as important as the terminal rate or how long rates stay there. Notably, Powell stated that it is “very premature” to consider pausing rate hikes, and the S&P 500 Index finished the day down 2.50%. We are seeing a downshift for the rate hike on Dec 14th to 50 bps from 75 bps after these four consecutives 75 bps rate hikes. Currently the Fed Fund Futures are pricing in a terminal peak rate of 5-5.25% next year which represents a 25 bps higher peak rate.
- Shares in Europe rose for a third week running, as central banks signaled that they may curb the pace of rate increases while investor sentiment received a boost from hopes that China might walk back its zero-COVID policies. Meanwhile, year-over-year inflation in the eurozone accelerated by more than expected to 10.7% in October from 9.9% the previous month, fueled by higher energy prices. Also, early estimates showed gross domestic product growth expanded 0.2% in the third quarter, a slowdown from the 0.8% growth rate recorded in the April through June period. Over in the UK, the BoE increased its benchmark interest rate by 0.75 percentage point to 3%, the highest level since 2008, to contain inflation.
- Japan’s services sector expanded at a stronger rate in October, according to fresh Purchasing Managers’ Index (PMI) data. Minutes of the BoJ’s September Monetary Policy Meeting suggested that Japan’s economy had picked up as activity had resumed.
- China’s stock markets rallied amid speculation that the country was preparing to relax its zero-tolerance approach to the coronavirus. Chinese official PMI readings for manufacturing and non-manufacturing activity in October both missed forecasts and landed below 50, the level separating growth from contraction.
Enjoy this week’s update;
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