Dow -1.34%, SPX -2.37%, Nasdaq -3.08%, Russell 2000 -2.66%, SOX -4.46%, Eurostoxx + 0.57%, SMI + 0.99%.
The glimmer of hope generated by Thursday’s powerful technical rebound is extinguished like a vulgar candle on Friday by a market that is on the alert and does not appreciate the announcement of the rise in inflation expectations that appears in Friday’s survey of consumer sentiment. University of Michigan and pushed Treasury yields to their highest levels since 2008. the day before breaking news of a higher-than-expected US CPI. The S & P500 (SPX) index achieves the “firm” of falling more than 1% for the 5And consecutive Friday. Equity indices can be expected to remain closed on Friday this year, taking a step back, we see 36% of them leading to dips above 1%, no other year comes close enough to this crazy woman to performance. From a technical point of view, the SPX ended its day right on its horizontal support level (zone 3574 – 3584, closing at 3583 points). The Nasdaq100 (NDX) in the meantime would do well to recover its 11,000 point level without delay, lest the bears encourage each other. Closing on Friday at 10,692 points.
All sectors of the SPX fell during the day, with discretionary consumption, energy and materials on the podium of the most beautiful slides. The giants of the coast are neglected (especially AAPL, AMZN, TSLA, MSFT, NVDA, GOOG, META), difficult to make a good fence in such conditions. I acknowledge that trading volumes in the TQQQ ETF (Exchange Traded Fund) are exploding on Thursday and Friday. This ETF is a form of “Silver Star” for adults, allowing you to expose yourself to 300% of the performance of the NDX. The average daily trading volume on the TQQQ is 142 million shares, 414 million are traded on Thursday, 335 million on Friday. At the same time, trading volumes on Friday are capped at 10.2 billion shares traded, so the market focused on technology on Thursday, with a pendulum effect on Friday. The tectonic plates are therefore in motion, but volatility seems to have found its base camp, it remains to be seen whether it is going to descend to the plains or climb a peak. The VIX closes its Friday session unchanged at 32, resistance 35 seems so close and so far at the same time.
As we can see, the end of last week gave birth to powerful and even violent technical movements on equity indices. One lesson to be drawn from this is that Wall Street now appears to have assimilated the idea that the Fed will actually do what it says, the market expects key rates to peak at 4.90% in April 2023, it is above 4.6% on average for 2023 by the Fed model. A 75 basis point increase on November 2 is fully expected, while the Fed Funds expect 50 basis points at the meeting on December 14. It is undeniable that movements such as those observed last Thursday and Friday are likely to destabilize more than one player, bullish or bearish. Bespoke Investment Group takes up the subject and reminds us that violent movements of the Thursday type only occur very rarely (9 times since 1983). According to BI, these wild fluctuations are often followed by short-term volatility, but they also often indicate the approach of that famous low, which the bulls are looking forward to.
In any case, there are opportunities, even in the current mosaic, both from excellent quality bonds in view of a slowdown in growth and inflation in 2023, conditioned by the strong monetary tightening underway. Yields have returned attractive, including on Swiss franc signatures. In another register, structured products remain the protagonists of the moment, offering high coupons often accompanied by a fairly measured risk-taking. Even within the live equity market, opportunities arise if you focus on companies with particularly strong cash flows.
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bad guys Fed governors continue to beat the drum of “higher rates for longer”. San Francisco Fed Chair Mary Daly says rates are likely to rise to 4.5% -5%, while Esther George of the Kansas City Fed says higher savings rates have provided a buffer for the Fed to raise interest rates. rates more than they otherwise would have been.
British politics and macroeconomic difficulties are also attracting market attention. Finance Minister Kwarteng is fired and replaced by Jeremy Hunt. Meanwhile, Conservative Party members are said to be in talks to replace Liz Truss with a “unitary candidate”. The Gilts market starts Friday with a downward yield of over 25bps ….. to close at +14bps! Liz Truss will fight to save her job as prime minister this week as the financial markets issue a new verdict on her economic return. The pound rebounded to 1.1261 against the dollar this morning as new chancellor Jeremy Hunt could cancel his package of unfunded tax cuts. She will make a statement today about her tax plans. Trading on gilts will be closely followed after the Bank of England ended its support program on Friday.
The end of last week was also marked by the true start of the corporate earnings season in the third quarter. American banks are out and things are going pretty well, with one exception: C + 0.65%, JPM + 1.66%, MS -5.07% and WFC + 1.86%, the big news is the huge increase in NII / NIM (Net Interest Income) thanks to the rise in bond yields, while interest income fell (but not as expected). Morgan Stanley is the ugly duckling of the day, largely because the NII doesn’t make up such a large part of its turnover there. Credit quality remains generally very healthy, although there is a slight weakening on the margins, while loan growth remains robust. Industry predicts better prospects for 2022 (but not 2023)
In conclusion, the stock market indices had a particularly volatile last week, split between rising bond yields, recession fears and higher-than-expected US inflation statistics, which confirm the Fed’s trajectory. Central European end of the month and that of the Federal Reserve on November 2, the focus should be on corporate publications for the third quarter.
Xi Jinping kicked off the Chinese Communist Party Congress by reaffirming the goal of reunification with Taiwan and supporting policies such as the repression of Hong Kong and Covid Zero. He maintains a 20-year precedent in naming economic development as the party’s top priority: some analysts expected Xi to say national security was the new top priority.
The start of the week will be marked by the announcement of the first estimate of Chinese GDP growth in the third quarter (Tuesday). This will be followed by the UK Consumer Price Index for September (Wednesday) and the US Philly Fed Manufacturing Index (Thursday). James Bullard, one of the Fed’s top members at the moment, will deliver a speech overnight Wednesday through Thursday.
In the macro menu for the day, the American Empire Manufacturing Index for October will be released at 2.30pm.
The top names releasing quarterly results this week will be Johnson & Johnson, Roche, Netflix, Tesla, Nestlé, ASML, IBM and L’Oreal. The calendar features 59 companies from the US S & P500 index and 34 from the European Stoxx Europe 600 index.
News Corp and Fox Corp are discussing a merger. Broadcom hopes for swift EU approval of the $ 61 billion acquisition of VMware. Vodafone and Altice sign an agreement to implement fiber in Germany. Goldman Sachs will combine its investment banking and trading businesses, reports the Wall Street newspaper. Cevian sold most of its Vodafone shares until last June, according to Financial Times. Apple is freezing its plan to use Chinese YMTC chips, Nikkei says. Starboard activist takes a major stake in Splunk. Temenos drops 19% on Friday. The Swiss group is revising its targets for 2022 downwards, in proportions that surprise analysts. Apparently, clients in the financial sector have postponed their investment decisions. These bad figures lead to the departure of the recently arrived sales manager. Activist shareholder Petrus Advisers is holding back management following publication. According to Wall Street newspaper, Goldman Sachs plans to combine its merchant banking and trading businesses into one unit. Its wealth and wealth management divisions could be consolidated into another unit which would include its retail banking branch. Credit Suisse prepares to sell parts of its home bank in an effort to fill a capital shortfall of around 4.5 billion Swiss francs, according to the Financial Times.
Tonight and this morning in Asia, indices are trading in no particular order. Tokyo lost 1.16% to the bell, Hong Kong lost 0.15%, Shanghai rose 0.42%, and Seoul took 0.32%. SPX futures are up 40 points and Europe opens a slight 0.2%, so it escaped Friday night’s punishment as it stands. The dollar and the euro neutralize each other, the pair moves to 0.9737, gold is trading at $ 1652 an ounce, and oil fell to $ 86.51 a barrel on the probably biased WTI Light Crude. from fears of a recession.