US Equities: Markets sold off as the 10-year Treasury yield surged to 4.80% following the unexpectedly strong job openings data. The S&P500 fell by 1.4% to 4,229 while the Nasdaq100 plummeted by 1.8% to 14,566. VIX, the gauge of fear, jumped by more than 2 points to 19.78, marking its highest level since May. The S&P 500 is poised to test its 200-day moving average at 4,202.
Fixed income: Yields gained momentum as they surged higher following the release of a JOLTS report indicating that the US labor market remains strong. The selling pressure persisted throughout afternoon trading, causing yields across the curve to close near their daily highs. The 10-year yield surged by 12bps to reach a new 16-year high at 4.81% and close at 4.80%. Meanwhile, the 2-year yield climbed by 5bps to 5.15%. The 2-10-year curve bear steepened by 7bps, bringing it to -36.
In Saxo’s Q4 Quarterly Outlook, "Bond. Long Bond(s)", we look at how an economic slowdown and ‘peak rates’ could push us toward a stagflation lite environment and an opportunity to go long bonds.
China/HK Equities: Absent the southbound Stock Connect buying from mainland investors, the Hang Seng Index plummeted about 2.7%, driven by consumer and property stocks. The Hang Seng Tech Index dropped by 2.6% with Internet and EV names taking a step back. Despite the positive headlines regarding tourism and consumption during the Golden Week, investors are wary of the pace of China’s pace of economic recovery and the surge in bond yields in the U.S.
FX: While yields saw another fresh surge on the back of US data showing a still-tight labor market, dollar gains were capped by a suspected yen intervention although Japanese officials have denied any intervention. USDJPY rose to highs of 150.16 before a sharp decline to 147.43 but yen weakness returned and pair was back above 149 in Asia morning. AUDUSD plunge extended to the 0.63 handle after RBA sounded comfortable with the inflation trajectory, while NZDUSD has not sustained the move below 0.59 for now and RBNZ meeting is eyed today. Expectations are for a hawkish hold with elections due soon.
Commodities: Oil and gold stabilised after some selling earlier in the week. Brent crude rose back to $91/barrel, and focus turns to Joint Ministerial Monitoring Committee meeting today while discussions to restart the Iraqi oil flows through the Turkish pipeline are still ongoing. Gold also recovered above $1820 despite the fresh surge in yields and $1800 key support remains in focus.
- US JOLTS job openings spiked higher to 9.61mn in August from 8.92mn (revised higher from 8.83mn) in July. Quits rate (leading indicator of wage growth) was unchanged at 2.3% and opening per unemployed person ticked lower.
- RBA stayed pat, keeping cash rate unchanged at 4.10%, and signalled inflation could fall back in the 2-3% target in late 2025.
In the news:
- McCarthy ousted as speaker of the House (Politico)
- Japan’s Top FX Official Declines to Say If Intervened on Yen (Bloomberg)
- ECB Not Yet at Price Target, More Work to Be Done, ECB Chief Economist Lane Says (Bloomberg)
- Key Taiwan Tech Firms Helping Huawei With China Chip Plants (Bloomberg)
- Kellanova, WK Kellogg shares slump on first day after spinoff (Reuters)
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