Market Review from October 30th to November 3rd: The Central Bank Super Week truly deserves its reputation! Last week, the Fed's dovish suspension of interest rate hikes caused a frenzy in global stocks and bonds. Coupled with weak non farm employment data, market expectations for further Fed rate hikes have cooled. US stocks have recorded their largest weekly growth this year, while the US dollar has continued to decline. At the same time, the Bank of Japan's decision has caused the yen to experience a roller coaster ride.
In terms of market performance, there has been a major outbreak of global risky assets, with both US dollar and US bond yields falling. Gold has missed the 2000 mark and ended its three week upward trend, while crude oil has fallen as much as 6%.
Foreign exchange market:
Last week, the US dollar saw a sharp reversal, with the US dollar index breaking through the 107 level after a volatile rebound at the beginning of the week, reaching a maximum of 107.11. With the suspension of the Fed's dovish stance, suggesting the possibility of ending the aggressive tightening cycle, the US dollar index sharply fell from its high on Wednesday, followed by consecutive losses at the 106 and 105 levels. On Friday, it plummeted by over 100 points, reaching a minimum of 104.94 levels, a new low since September 20th, under the influence of the cold non-agricultural sector, When the week barely closed above the 105 level, the weekly decline exceeded 150 points, or 1.42%, marking the largest weekly decline since mid July.
At a time when the US dollar hit a high and fell back, the euro showed the opposite trend. Since the beginning of the week, it has fallen and missed the 1.06 level. On Wednesday, it plummeted and hit the 1.0516 level, reaching the 1.05 level. Soon, under the influence of the dovish Federal Reserve, it quickly counterattacked. On Thursday and Friday, it surged by over 200 points, reaching the highest level of 1.0747, and finally closed at 1.0730. The weekly increase reached 170 points, or 1.61%, which is the largest weekly increase since mid July. The trend of the pound this week is similar to that of the euro, showing a late burst pattern. It fluctuated around 1.2150 for three consecutive trading days at the beginning of the week, and on Thursday and Friday, the bulls broke out, breaking through the 1.22 and 1.23 levels one after another, reaching the highest level of 1.2389. When the week rose by over 250 points, the weekly increase reached 2.1%, marking the best weekly performance since mid November last year. The US dollar/yen experienced a roller coaster ride this week. On Tuesday, the Bank of Japan fine-tuned its YCC policy, which was not as hawkish as market expectations. The yen saw a sharp dive and plummeted 258 points, hitting a low of 151.73 against the US dollar, with a drop of 1.73%. Over the following three trading days, with verbal intervention from Japanese officials and the impact of the US dollar's decline, the yen barely recovered some of its losses. The week still saw a slight drop of 0.18% and closed at 149.33.
Commodity: Gold maintained a high consolidation posture last week and began to consolidate after three consecutive weeks of strong gains. The gold price gradually fell below the 2000 level, reaching a minimum of $1969, and closed at $1992 that week, with a weekly decline of 0.24%. At the same time, spot silver fluctuated last week, fluctuating around $23 overall, reaching a minimum of $22.52 and a maximum of $23.59, with a slight increase of 1.1% that week.
The crude oil market suffered a heavy setback last week. WTI December crude oil futures closed down $1.95, a decrease of 2.36%, at $80.51 per barrel, with a cumulative decline of 5.88% for the week. Brent crude oil for January closed down $1.96, a decrease of 2.26%, at $84.89 per barrel, with a cumulative decline of 6.18% for the week.
Global stock market: Last week, global stock markets recorded their largest weekly gain in nearly a year, while the MSCI Global Index posted its largest five day gain in ten months. The three major US stock indices rose across the board, with the Nasdaq rising for five consecutive weeks, rising by over 6% in one week and reversing three consecutive weeks of decline; The benchmark index has hit its highest level since October 17th for two consecutive days, with a cumulative increase of 5.9% this week, marking the largest weekly increase of the year; The Dow has hit a new high since September 21st, rebounding a cumulative 5.1% this week. European stocks achieved their largest weekly gain since March, with the STOXX 600 index in Europe rising 3.41% for the entire week. This week, the three major A-share indices closed higher, with the Shanghai Composite Index up 0.43%, the Shenzhen Composite Index up 0.85%, and the ChiNext Index up 1.98%.
In terms of the bond market, US bond prices generally rose last week, with the 10-year yield hitting a new low in one month, dropping by over 10 basis points in three consecutive days of intraday trading. The two-year yield once dropped by nearly 20 basis points to a two-month low.
Weekly Highlights Inventory:
Last week, the Central Bank Super Week ignited a big market! The Bank of Japan fine-tuned the YCC, causing the yen to plummet by more than 250 points within a day. Subsequently, on Wednesday, the Federal Reserve, as expected, suspended its dovish stance, suggesting that the tightening cycle may end, causing global markets to skyrocket and the US dollar to rebound.
At 2am Beijing time on Thursday (November 2nd), the Federal Reserve announced its November interest rate results during a two-day monetary policy meeting. Federal Reserve Chairman Powell will hold a press conference after the meeting at 2:30 am as usual.
On Wednesday (November 1st) local time, the Federal Reserve kept short-term key interest rates unchanged for the second time in a row, but if inflationary pressure intensifies in the coming months, there may be further interest rate hikes.
The Federal Reserve issued a statement after its recent meeting stating that it will maintain its benchmark interest rate at around 5.4%, the highest level in 22 years. Since March 2022, when it launched its most aggressive series of interest rate hikes in 40 years to combat inflation, the Federal Reserve has reduced its efforts and has only raised interest rates once since May.
The latest statement points out that the recent turmoil in the financial market has led to long-term interest rates rising to nearly 16 year highs and led to an increase in borrowing rates for the entire economy. The report states that "the tightening financial and credit conditions of households and businesses may put pressure on economic activity
This statement echoes the recent comments of Federal Reserve officials, that is, the rise in the yield of 10-year treasury bond bonds - or interest rates - may have a restraining effect on the economy and curb inflation, replacing the Federal Reserve's further interest rate hike.
Jerome Powell stated at a press conference that if higher interest rates remain high for a long time, a surge in long-term interest rates will lead to an economic slowdown. But he warned that the Federal Reserve is not yet confident that its benchmark interest rate is high enough to slow economic growth over time.
For the Federal Reserve, it is important that even if the central bank did not raise interest rates, the yield of 10-year treasury bond bonds will continue to rise. This shows that even if the Federal Reserve keeps the benchmark interest rate unchanged, the yield of treasury bond bonds may remain high, thus helping to curb economic growth and inflation.
Other major central banks have also been slowing down interest rate hikes as their inflation indicators seem to have improved. The European Central Bank held its benchmark interest rate unchanged last week, and the inflation rates of the 20 countries using the euro fell to 2.9% last month, the lowest level in more than two years.
Affected by the suspension of the Fed's dovish stance, US stocks and bonds rose hand in hand, causing a frenzy in the market.
On Wednesday local time, the three major indices of the US stock market maintained their upward trend throughout the day, with the S&P 500 and Nasdaq both ending up more than 1% higher, and the Dow ending up 0.7% higher.
The yield on US Treasuries fell collectively, with the two-year yield falling by over 14 basis points and falling below the 5% mark. The 10-year yield on US Treasuries fell by 12 basis points to 4.75%, hitting a two-week low. The 30-year yield on US Treasuries fell as much as 8 basis points to 4.94%.
Media writer and former President of the New York Fed, Bill Dudley, said that the Fed is basically saying, "We don't think we need to take more action from now on. Powell feels very confident that the Fed has done a lot
Capital Group, a large fund company, believes that the Federal Reserve's recent suggestion that it may end its aggressive tightening cycle has become a good opportunity to enter the market. It suggests that clients should heavily absorb global stocks, as stocks will outperform bonds and cash after interest rates peak.
For investors, the truly important information is that the moment the central bank's interest rate peaks, it is likely to open a window, which will be a very good investment opportunity, "said Andy Budden, the head of equity investment at this $2.3 trillion asset management company.
According to Capital Group's analysis of the past four rounds of rate hikes, the average return on global stock markets in US dollars exceeded 12% in the 12 months following the last round of rate hikes by the Federal Reserve. In contrast, global bond yields are about 6% and cash returns are about 4%.
Former "bond king" Bill Gross stated on social media platform X that US banking stocks have bottomed out and are currently absorbing some related shares.
In addition, the Bank of England also maintained key interest rates unchanged in September. At the same time, the Bank of Japan has relaxed its control over long-term interest rates and is gradually increasing borrowing costs.
On Tuesday, the Japanese yen experienced its largest daily decline against the US dollar since April, with the Bank of Japan making minor adjustments to its policy of lowering government bond yields.
On October 31, at the latest interest meeting, the Bank of Japan kept its policy interest rate unchanged at -0.100% and the 10-year treasury bond bond yield target unchanged at 0.00%.
As for the yield of Japanese treasury bond, the Bank of Japan said that the long-term yield ceiling, with 1% as a reference, would improve the policy flexibility of the yield curve control plan (YCC). He stated that improving the flexibility of the YCC policy is appropriate, as implementing a 1% cap on fixed interest rate operations may have significant side effects. If the yield cap remains rigid, the side effects will become even greater
Before this meeting, there were various rumors about the adjustment of the YCC curve, but the final results showed that although the Bank of Japan did indeed change the "hard limit" of 1% interest rate to a reference and stated that it would be more flexible, it did not meet the previous market expectations of explicitly relaxing the limit to 1.5%.
In addition, the Bank of Japan's overall statement on the 31st was also biased towards a "dove like" stance, stating that it will continue to patiently implement loose monetary policy and will not hesitate to increase easing measures if necessary. The bank also reiterated that YCC policy will be implemented mainly through large-scale Japanese treasury bond bond purchase operations.
Affected by the above news, the Japanese yen fell 1.7% against the US dollar to 151.60 yen, the lowest level since October last year, close to the record low of 6.35 trillion yen ($43 billion) that the Bank of Japan intervened to push up the yen.
Subsequently, on Wednesday, after officials from the Japan Foreign Exchange Bureau expressed their readiness to intervene in the foreign exchange market, the yen strengthened from near its lowest level this year.
The market believes that adjusting the flexible exchange rate mechanism is a clear dove trend, "said Chris Weston, research director at Pepperstone
The sharp decline in the yen has prompted Masato Kanda, a senior foreign exchange diplomat in Japan, to issue a new and harsher warning, stating that the authorities are prepared to respond to the recent "unilateral and intense" fluctuations in the yen.
After his remarks, the Japanese yen rose 0.24% against the US dollar to 151.31 yen, but it is still close to the one-year low of 151.74 hit on Tuesday and the 30-year low of 151.94 yen hit last year.
At a time when global stock markets are expected to record their largest weekly gain in a year, Friday's non farm "explosive" interest rate hike ended expectations, and US stocks and bonds sparked a frenzy.
Affected by the strike in the automotive industry, the number of new non farm employment in the United States slowed down in October, exceeding expectations, while the unemployment rate rose to its highest level since January 2022, indicating that the labor market is beginning to cool.
On Friday, November 3rd, the United States Bureau of Labor Statistics released data showing that the number of non farm workers in the United States increased by 150000 in October, with an expected increase of 180000; The number of new jobs added in September decreased from 336000 to 297000. The number of new jobs added in October was only half of the number of new jobs added in September, the second lowest employment growth since 2022.
The unemployment rate in October was 3.9%, exceeding the expected 3.8%, and rebounding from September's 3.8%, reaching a new high in nearly two years. The total number of unemployed people was 6.5 million. The report points out that although the unemployment rate indicator has not changed much month on month, it has increased by more than 0.5% compared to the low point in April, and the number of unemployed people has increased by 849000. Analysis suggests that the rise in unemployment rate marks the beginning of a cooling down in the hot recruitment season this summer.
At the same time, the salary increase in October slightly exceeded expectations, with a year-on-year growth rate slowing to 4.1% from 4.2% last month, exceeding expectations by 4%, marking the smallest annual increase since mid-2021. The average hourly wage in October increased by 0.2% month on month, lower than the expected 0.3% and unchanged from September.
After the employment report, US bond yields plummeted, and the 10-year yield hit a new low in a month. It has dropped by over 10 basis points in the middle of the day for three consecutive days, with a cumulative decrease of about 26 basis points this week.
The sharp fluctuations in the 'anchor of global asset pricing' have pushed up US stocks, with the Nasdaq rising for five consecutive days, exceeding 6% in one week and reversing three consecutive weeks of losses. The S&P has hit its highest point since October 17 for two consecutive days, and the Dow has hit its highest point since September 21.
The global stock market also recorded its largest weekly gain in nearly a year, with the MSCI Global Index posting its largest five day gain in ten months this week.
After the employment data was released, the swap market showed that there was only a 20% chance for the Federal Reserve to raise interest rates in January next year, and it was estimated that interest rates would start cutting in June. Previously, it was predicted that interest rates would be lowered as soon as July.
Kathy Jones, Chief Fixed Rate Income Strategist at Credit Suisse Wealth Management, believes that the Federal Reserve will maintain interest rates unchanged in December, and the rate hike may have come to an end.
Gregory Faranello, head of US interest rate trading and strategy at AmeriVet Securities, said that the employment report aligns with the view of the US economy that it is slowing down.
Will Compernoll, a financial macro strategist at FHN in New York, said that the market is now very confident that the Federal Reserve has completed raising interest rates, The October non farm report is the last step in market pricing: "I won't say that this data report really indicates a slowdown in the economy after entering the fourth quarter. I think there are still many economic data indicating strong economic growth, but this definitely indicates a weakness in the labor market. I think the Federal Reserve has been looking forward to it for some time
