2023-10-04 07:41:54
Dow -1,29%, S&P 500 -1,37% Nasdaq -1,87% Russell 2000 -1,69%, SOX -2,10%, Eurostoxx -1,02%, SMI -0,97%.
The always excellent Anthony Bondain headlines this morning that “it’s a mess”. And as everyone knows, it’s often in the bazaars that you get the best deals (while keeping a cool head though).
If we confine ourselves to the surface of the financial markets this Tuesday, it smells like a storm. See instead: the Dow Jones goes into negative territory over the year, bond yields continue to rise, the dollar does the same, volatility is racing in stocks and bonds, the American government deficit is less and less. less ignorable and the speaker of the American House of Representatives is dethroned (by his own camp) for the first time in history (read: Congress risks paralysis, not a very good sign in itself). But why are US bond yields continuing their forced march towards the sky? The excuse given yesterday is the publication of the JOLTs index on job openings in the United States, which shows that the American job market is still unbalanced and offers many more open positions than expected. It turns out that overheating employment is one of the main factors pushing the Fed to maintain its high rates. The reasoning is therefore easy and quick, yesterday we were saying in financial circles that the sacrosanct liquidity tap will remain closed even longer than expected, general frustration and risk aversion on the menu of the day. So hey, we forget to remember that the JOLTS report is a damn delayed indicator, lucidity when we miss you… That said, it’s Friday that money time will occur on this subject, during the publication of the highly anticipated report on job of the month for September.
Result of the races, the 2-year US takes off at 5.16%, the 10-year soars at 4.85% (5.00% here we come?) and Wall Street laments, the red carpet is rolled out, the bears can enter the scene (or rather stay there). Almost all sectors of the SPX fell yesterday with consumer discretionary, real estate and technology on the podium of infamy. The venerable Dow Jones falls 430 points and enters negative territory over the year, which will teach it not to be sufficiently equipped in technological stocks. The SPX closes at 4229 points, its 200-day moving average moves to 4201 points, this is its next support, then we move back one point to go to the psychological level of 4200. Volatility is back, the VIX takes off by 12.3% to 19.78, its big bond brother MOVE did the same, it jumped 11% to 141.67. The market breadth is poor with SPX at 4 – 1 negative, trading volumes increase for the second consecutive session. The Fed Funds market is lost in translation and no longer foresees anything concrete (thanks for the help…), the dollar is strong as rarely, the eur/usd pair is trading this morning at 1.0473, we can therefore say 1.0500 support is almost history, the next level is at… 1.0454 (50% Fibonnacci retracement of the rise from 0.9633 to 1.1276).
That’s for the market surface area.
Let’s scratch a little to see what’s underneath. The volatility of the SPX is certainly taking off, but by observing the futures market, we see that the 3-month VIX is trading below the spot level, which tells us that traders (professionals, not robinhooders who have not returned to bet on post-pandemic football), believe that the stock market is close to a bottom. Now look at the US yield curve, the 2/10 year spread is trading at -31 basis points this morning. A few days ago it was at -50 bps and a few months ago at -100 bps. When the 2/10-year yield curve is inverted, this means that the yield on the 2-year is higher than that on the 10-year, as the bond market believes that a recession is near. The fact that we went from -100 bps to -31 bps indicates that this same market expects less and less of a recession. Remember, inflation is certainly a concern, but we know that it is slowing down and, at the same time, the market is concerned regarding growth, the US yield curve, if we observe it, sends a reassuring signal. And then there are titles which, apparently, are sought following in this nervous market. Take Nvidia, which has risen 7 of the last 8 sessions, if this is not positioning on weakness you have to explain. On the sector side, following Monday’s capitulation, utilities rebounded by 1.1% yesterday, once more positioning is underway, institutional investors are doing their shopping while small investors are starting to lose their nerve. Add to this that the US 10-year yield is massively overbought, take a step back and tell yourself that, even if the ambient volatility may remain with us for some time to come, we must keep reason and not throw everything in the trash. . On the other hand, for those who don’t hold enough bonds, it’s shopping day today, obviously.
The ouster of Kevin McCarthy as speaker of the House of Representatives plunges Congress into an internal power struggle as it must avoid a government shutdown and approve aid to Ukraine. Mr McCarthy lost his post as president – the first such impeachment in US history – following hard-line Republicans revolted once morest the compromise he had struck with Democrats. Patrick McHenry is named interim president and Mr. McCarthy says he will not run once more.
On today’s macroeconomic menu, we start with the Composite and Services PMIs of France (9:50 a.m.), Germany (9:55 a.m.), the euro zone (10:00 a.m.) and the United Kingdom (10:30 a.m.). The followingnoon will be devoted to the United States with the variation in ADP employment (2:15 p.m.), the Composite and Services PMI (3:45 p.m.), orders for durable and industrial goods (4:00 p.m.), the ISM for services (4:00 p.m. ) and DOE crude stocks (4:30 p.m.).
Novartis completes Sandoz spin-off. Intel will spin off its programmable chip unit ahead of an IPO in 2024. Amazon and Microsoft are expected to be investigated in the UK over suspicions of dominance in the cloud computing market. Netflix plans to raise prices following Hollywood actors’ strike ends. AstraZeneca has agreed to settle disputes over its heart burn drugs Nexium and Prilosec for $425 million in the United States, without admitting fault. The small developer China SCE Group is working on restructuring its debt following defaulting on an offshore loan. Adecco will collaborate in artificial intelligence with Microsoft.
This night and this morning in Asia, the indices are trading lower. Tokyo lost 2.28% at the bell, Hong Kong returned 1.07%, Shanghai was still closed and Seoul lost 2.41%. The future SPX returns 20 points and Europe opens down 0.3%. Oil slides to $88.73 per barrel of WTI Light Crude and gold remains weak, trading at $1820 per ounce.
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