Weekly Commodities Update

Market Insights Today: Fed Hikes “still have some ways to go”. Weight will be put on eco data ahead – 3 Nov 2022

Equities 7 minutes to read
Jessica Amir

Market Strategist

Summary:  The Nasdaq 100 & S&P 500 drop after the Fed made hawkish remarks post lifting rates 0.75%. Fed says ‘we still have some ways to go’. It will make ‘ongoing increases’ until rates are ‘sufficiently restrictive’. Provided the upcoming economic data is strong, and shows the US economy is, the Fed can keep hiking. However, it could pivot as early as December. Until the next major US eco data release it seems equites could remain in risk-off mode, especially with high PE stocks, like tech, while defensive and commodity plays with rising cash flows could continue to garner interest. China’s Li signals a potential economic recovery, fuelling commodities and China’s markets. Crude oil rocks up after OPEC raised its forecast for oil demand. a2 Milk gets FDA green light.


What is happening in markets?

The Nasdaq 100 (USNAS100.I) & S&P 500 (US500.I) drop after Fed made hawkish remarks post lifting rates 0.75%

US major indices dropped on Powell's hawkish comments. The S&P 500 shed 2.5% and the Nasdaq plunged 3.4% with megacap tech stock copping the brunt of the selloff with Apple (AAPL) down 3.73% and Tesla (TSLA) down 5.6% with the EV giant reportedly shutting its flagship showroom in China, in Beijing as it shift strategy. What prompted high PE stocks being sold off was that Treasuries yields rose across the curve, with the 10-years up 4 bps to 4.08%. The dollar reversed course and rose against every G-10 peer save the yen. So, the bottom line is, the market will now be contending with a risk-off tone, until the next US economic data sets prove the Fed can pivot. Oil moved higher, while corn and wheat dropped on grain-corridor developments. Elsewhere, Boeing (BA) shares rose 2.8% with the plane maker saying it could generate $10 billion in cash annually by mid-decade, once it turns around its operations after years of setbacks.

Australia’s ASX200 (ASXSP200.1) futures suggest risk-off mode will be enacted with tech stocks on notice. Focus will be on milk

Aussie tech stocks are likely to come under pressure with US bond yields rising again. However, there may be bright sparks today. Iron ore (SCOA) rose 0.4% sitting back above $80.85, which might support iron ore companies shares. That said, BHP closed 3.1% lower in NY. A2Milk (A2M) may garner attention after the US FDA gave approval for a2 Milk to be sold in the US. Bubs Australia (BUB) may likely 'piggyback' on any gains. That said, you could expect infant formula stocks to gain interest, particularly as China’s outgoing premier signal China is striving to build sustainable development. In other news; Rio (RIO) moved in on taking over a Canadian copper-gold company, Turquoise Hill Resources (TRQ). On Wednesday in Australia, Rio offered C$43 per share for the Canadian miner, saying that is its best and final offer. Rio is seeking to buy 49% of the Canadian miner, that it doesn’t already own, in a deal valued at around C$4.24 billion. Turquoise Hill Resources shares surged The Investor meeting to consider the takeover is set for November 8. Rio is also bidding to gain control of Mongolia’s Oyu Tolgoi, one of the world’s biggest copper mines.

Crude oil (CLX2 & LCOZ2) rocks up after OPEC raised its forecast for oil demand

Oil rallied for several reason; firstly OPEC rose its forecasts for world oil demand in the medium to longer term, saying that $12.1 trillion of investment is needed to meet this demand. Second, an EIA report showed US gasoline inventories fell to the lowest since 2014 and East Coast distillate stocks slide to a record low seasonally, which intensifies supply concerns. Crude supplies also fell. Natural gas rose in the US and in Europe.

Fed says ‘we still have some ways to go’; and it will make ‘ongoing increases’ until rates are ‘sufficiently restrictive’. What to watch next, what it means for equities

Federal Reserve Chair Jerome Powell stuck to his campaign to bring inflation under control, saying “we still have some ways to go”, before rates were ‘sufficiently restrictive’ but the path may soon involve smaller hikes. Still, Powell sees it may be appropriate to make smaller hikes, as soon as December, or at the meeting after. But, he also said it was very premature to be thinking about pausing. After the Fed raised rates by 75 basis points on Wednesday, Powell said “incoming data since our last meeting suggests that ultimate level of interest rates will be higher than previously expected.” He also mentioned rate hikes have a lag effect on the economy, and the Fed needs to take this into account. This means, the devil will be in the detail ahead, as in the upcoming economic data which the Fed will respond to. Provided the upcoming economic data is strong, shows the US economy is, then the Fed can essentially keep hiking. For equites this means the risk-off mode in high PE stocks, like tech can possibly continue, inversely, defensive and commodity plays with rising cash flows might continue to garner interest. Saxo’s Head of FX Strategy says, so cue tomorrow’s ISM Services, Friday’s US jobs report, the October CPI due out next week, November 11 next week, and the November CPI report due December 12.

China’s Li Keqiang signals a potential economic recovery, fueling commodities and China’s markets

China’s outgoing premier Li Keqiang said China will strive for a "better" economic outcome and promote stable, healthy and sustainable development, saying China’s economy is showing signs of stabilizing, as well as “rebounding momentum" thanks to stimulus. This has supported gains in iron ore (SCOA) and also supported optimism in Asian equites.

Australian lending and building approvals fall more than expected, giving the RBA greater cause to remain dovish. Keeping AUDUSD on notice

House lending in Australia fell 8.2% in September (far more than the market expected) while building construction lending fell 36.6%, with the weaker data sets coming out just a day after the RBA remained dovish - rising Australia’s official cash rate by 25bps (0.25%) to 2.85%. On Tuesday the RBA acknowledged tighter financial conditions and the ‘full effect’ of increased interest rates are yet to be felt in ‘mortgage payments’, but the rate hikes since May, combined with higher inflation have already put pressure on household budgets. We believe the RBA could increasingly become dovish despite inflation running away to the upside. We think the RBA may be forced to potentially pause on rate hikes sooner, as they have done in history, despite peak inflation continuing to rise YoY. The AUDUSD remains under pressure for this reason. Plus until the Fed has reason to pivot the US dollar remains supported.

For a global look at markets – tune into our Podcast.

Quarterly Outlook

01 /

  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

  • Equity Outlook: Will lower rates lift all boats in equities?

    Quarterly Outlook

    Equity Outlook: Will lower rates lift all boats in equities?

    Peter Garnry

    Chief Investment Strategist

    After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
  • FX Outlook: USD in limbo amid political and policy jitters

    Quarterly Outlook

    FX Outlook: USD in limbo amid political and policy jitters

    Charu Chanana

    Chief Investment Strategist

    As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...
  • Macro Outlook: The US rate cut cycle has begun

    Quarterly Outlook

    Macro Outlook: The US rate cut cycle has begun

    Peter Garnry

    Chief Investment Strategist

    The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

  • FX: Risk-on currencies to surge against havens

    Quarterly Outlook

    FX: Risk-on currencies to surge against havens

    Charu Chanana

    Chief Investment Strategist

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo...
  • Equities: Are we blowing bubbles again

    Quarterly Outlook

    Equities: Are we blowing bubbles again

    Peter Garnry

    Chief Investment Strategist

    Explore key trends and opportunities in European equities and electrification theme as market dynami...
  • Macro: Sandcastle economics

    Quarterly Outlook

    Macro: Sandcastle economics

    Peter Garnry

    Chief Investment Strategist

    Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p...
  • Bonds: What to do until inflation stabilises

    Quarterly Outlook

    Bonds: What to do until inflation stabilises

    Althea Spinozzi

    Head of Fixed Income Strategy

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ...
  • Commodities: Energy and grains in focus as metals pause

    Quarterly Outlook

    Commodities: Energy and grains in focus as metals pause

    Ole Hansen

    Head of Commodity Strategy

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...
Disclaimer

The Saxo Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-hk/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo or its affiliates.

Saxo Capital Markets HK Limited
19th Floor
Shanghai Commercial Bank Tower
12 Queen’s Road Central
Hong Kong

Contact Saxo

Select region

Hong Kong S.A.R
Hong Kong S.A.R

Saxo Capital Markets HK Limited (“Saxo”) is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo holds a Type 1 Regulated Activity (Dealing in Securities); Type 2 Regulated Activity (Dealing in Futures Contract); Type 3 Regulated Activity (Leveraged Foreign Exchange Trading); Type 4 Regulated Activity (Advising on Securities) and Type 9 Regulated Activity (Asset Management) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products may result in your losses exceeding your initial deposits. Saxo does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo does not take into account an individual’s needs, objectives or financial situation. Please click here to view the relevant risk disclosure statements.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-hk/about-us/awards.

The information or the products and services referred to on this site may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and services offered on this website are not directed at, or intended for distribution to or use by, any person or entity residing in the United States and Japan. Please click here to view our full disclaimer.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc. Android is a trademark of Google Inc.