Start the week
European Markets
European stock indices were firmer in early trade, thanks to this morning’s rebound in US stock index futures. HSBC reported first thing and was little-changed after releasing a strong quarterly profit when compared to the same period last year, but which came in below expectations. There are also concerns about the bank’s exposure to Chinese commercial real estate. But the stock found support thanks to the announcement of another share buyback, this time around $3 billion. Generally, investors have fallen out of love with the UK’s banking sector, as they have with US regional banks. In October alone, Standard Chartered and Barclays have fallen 20%, while HSBC and Lloyds have lost around 10% each over the past fortnight. And Nat West is down over 40% since June, but faces its own regulatory issues. Hostilities in the Middle East are taking their toll while recession fears are also playing their part. Because of this, the Bank of England is expected to keep interest rates unchanged when it meets this Thursday. But there’s also a simmering concern that something isn’t quite right with the plumbing of the financial sector and this is causing investors to reduce their banking exposure.
US Markets
We’re seeing a decent bounce across all US stock indices this morning as we approach the end of October. Bulls have been left disappointed this month with many hoping for a recovery after September’s dismal performance. At the end of last week the S&P 500 joined the NASDAQ 100 in falling into correction territory, having lost 10% of its value since the July high. McDonald’s reported earlier and the stock rallied 2% on better-than-expected earnings and revenues.
This is a big week with the US Federal Reserve, the Bank of Japan and the Bank of England all announcing rate decisions. Apple, the world’s biggest corporation by market capitalisation, reports on Thursday and we have the latest Non-Farm Payroll on Friday. The current tight labour market is causing the Fed some concerns on fears that future wage demands could add to inflationary pressures.
Last Friday the Federal Reserve’s preferred inflation measure, Core PCE (Personal Consumption Expenditures) came in at +3.7% year-on-year, as expected. This was a touch below last month’s +3.9% but still well above the Fed’s 2% target. On top of this, last week we also saw an unexpectedly strong Q3 GDP number. With inflation above target, the tight labour market and the US economy putting in its best performance since the post-pandemic surge two years ago, there seems little to prevent the Fed from continuing to raise rates further. Despite this, the CME FedWatch tool says the probability of a rate hike on Wednesday is effectively zero, while the probability of a rise in December is currently 20%. Yet the yield on the key 10-year Treasury note continues to hover just underneath 5% - a level that has so far has held as resistance, but hasn’t proved high enough to encourage bond buyers. While Treasury Secretary Janet Yellen insists that high yields are a proof of the strength of the US economy, investors believe that they demonstrate the fear of rising deficits, the ever-growing national debt and the lack of political will to address it.
Commodities and Metals
Crude oil has fallen sharply this morning giving back Friday’s gains. There has been some surprise that crude should fall given the news that Israel sent in ground forces over the weekend. For now, front month WTI continues to consolidate around $84 and oil traders feel that the ongoing hostilities between Israel and Hamas are priced in. Traders are discounting the danger of any expansion of violence across the Middle East. But prices could shoot higher if there should be an escalation which threatens supply.
On Friday gold surged higher and sliced above $2,000. But it topped out just under $2,010 and has since pulled back towards $1,990. Gold is behaving more like the safe haven asset it was of old, and the ongoing crisis in the Middle East has certainly triggered some strong buying. For now, investors are spurning US government debt as the ultimate go-to safe haven, as they worry about the increased supply of bonds, federal debt and the loss of the Federal Reserve as a strong buyer. But it’s worth remembering that cryptos, particularly Bitcoin, are viewed by some as the most reliable safe haven. As far as Bitcoin is concerned, there’s no danger that any government can intervene to increase supply and so undermine its value. Bitcoin is up 20% so far this month.
European stock indices were firmer in early trade, thanks to this morning’s rebound in US stock index futures. HSBC reported first thing and was little-changed after releasing a strong quarterly profit when compared to the same period last year, but which came in below expectations. There are also concerns about the bank’s exposure to Chinese commercial real estate. But the stock found support thanks to the announcement of another share buyback, this time around $3 billion. Generally, investors have fallen out of love with the UK’s banking sector, as they have with US regional banks. In October alone, Standard Chartered and Barclays have fallen 20%, while HSBC and Lloyds have lost around 10% each over the past fortnight. And Nat West is down over 40% since June, but faces its own regulatory issues. Hostilities in the Middle East are taking their toll while recession fears are also playing their part. Because of this, the Bank of England is expected to keep interest rates unchanged when it meets this Thursday. But there’s also a simmering concern that something isn’t quite right with the plumbing of the financial sector and this is causing investors to reduce their banking exposure.
US Markets
We’re seeing a decent bounce across all US stock indices this morning as we approach the end of October. Bulls have been left disappointed this month with many hoping for a recovery after September’s dismal performance. At the end of last week the S&P 500 joined the NASDAQ 100 in falling into correction territory, having lost 10% of its value since the July high. McDonald’s reported earlier and the stock rallied 2% on better-than-expected earnings and revenues.
This is a big week with the US Federal Reserve, the Bank of Japan and the Bank of England all announcing rate decisions. Apple, the world’s biggest corporation by market capitalisation, reports on Thursday and we have the latest Non-Farm Payroll on Friday. The current tight labour market is causing the Fed some concerns on fears that future wage demands could add to inflationary pressures.
Last Friday the Federal Reserve’s preferred inflation measure, Core PCE (Personal Consumption Expenditures) came in at +3.7% year-on-year, as expected. This was a touch below last month’s +3.9% but still well above the Fed’s 2% target. On top of this, last week we also saw an unexpectedly strong Q3 GDP number. With inflation above target, the tight labour market and the US economy putting in its best performance since the post-pandemic surge two years ago, there seems little to prevent the Fed from continuing to raise rates further. Despite this, the CME FedWatch tool says the probability of a rate hike on Wednesday is effectively zero, while the probability of a rise in December is currently 20%. Yet the yield on the key 10-year Treasury note continues to hover just underneath 5% - a level that has so far has held as resistance, but hasn’t proved high enough to encourage bond buyers. While Treasury Secretary Janet Yellen insists that high yields are a proof of the strength of the US economy, investors believe that they demonstrate the fear of rising deficits, the ever-growing national debt and the lack of political will to address it.
Commodities and Metals
Crude oil has fallen sharply this morning giving back Friday’s gains. There has been some surprise that crude should fall given the news that Israel sent in ground forces over the weekend. For now, front month WTI continues to consolidate around $84 and oil traders feel that the ongoing hostilities between Israel and Hamas are priced in. Traders are discounting the danger of any expansion of violence across the Middle East. But prices could shoot higher if there should be an escalation which threatens supply.
On Friday gold surged higher and sliced above $2,000. But it topped out just under $2,010 and has since pulled back towards $1,990. Gold is behaving more like the safe haven asset it was of old, and the ongoing crisis in the Middle East has certainly triggered some strong buying. For now, investors are spurning US government debt as the ultimate go-to safe haven, as they worry about the increased supply of bonds, federal debt and the loss of the Federal Reserve as a strong buyer. But it’s worth remembering that cryptos, particularly Bitcoin, are viewed by some as the most reliable safe haven. As far as Bitcoin is concerned, there’s no danger that any government can intervene to increase supply and so undermine its value. Bitcoin is up 20% so far this month.
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