Summary: The Nasdaq 100 and S&P 500 indices plunged after hot US inflation (the highest in 40-years), then markets whip sawed higher, moving in a 5% range fueled by short selling covering. That being said, the futures market is now pricing in US interest rates will peak at 4.9% next year, setting the tone for value over growth assets. APAC equities may meet a similar fate to US stocks and have a wild day of trade, however most futures are trading higher suggesting APAC will have a positive day of trade.. We cover some of the most traded instruments at Saxo this week, with buying of Crude oil Futures picking up with the OPEC and EIA still predicting demand will outpace supply in 2023. Crude oil rallied 2% overnight.
Core inflation (which excludes volatile food and energy items) rose to a 40-year high in September which gives the Federal Reserve reason to continue with its aggressive interest-rate hikes. The Nasdaq 100 fell over 3% and the S&P500 fell 2.35% before both major indices whipsawed higher with the Nasdaq ending up 2.3% and the S&P500 up 2.6%. Short selling covering would have played a huge role in the reason markets whipsawed higher. Institutional investors spent more than $10 billion on put contracts (insurance on downside protection) on individual stocks last week. That’s a record. And we’ve been speaking about this for some time. At Thursday’s low, a lot of those contracts would have become immediately profitable when the market fell; causing traders to cover their put positions. That being said, the futures market is now pricing in US interest rates will peak at 4.9% next year, with the Fed expected to hike by 0.75% when they next meet, which implies markets still have to price this in, and so, too investors. We also believe markets will be driven by a ‘peak hawkishness’ narrative, essential where growth assets typically continue to face pressure and value strengthen. Also recall, amid the energy crisis, there are the most rising-free cash flows in energy markets, which offer value.
The most traded stocks this week at Saxo in Australia are Tesla, Apple, Whitehaven Coal (hit new high), Coles, and Bank of Queensland results. What’s the takeaway here? We need to reflect on the trends. Trends are your friends when it comes to making profits in markets. In the banking sector; we heard from Bank of Queensland who is forecasting house prices to drop and loan growth to slow. Coal prices are moving up and continues to be supported. And in when it comes to the most transacted upon futures, in commodities; we've seen a pick-up in buying of Crude oil Futures; with the OPEC and EIA still predicting demand will outpace supply in 2023, meaning we could expect higher oil prices into next year.
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2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
