Inflation, Yields and Earnings dominated market sentiment this week as the USD found some support and commodity prices continued to soar.
The Market Week – October – Week 4
As last week, Yields remain the key driver of markets, while the Greenback has found some support as stock markets hit new all-time highs. Central banks have come into focus and remain on the hawkish side as inflation data continued to suggest a “higher for longer” outcome. The Evergrande saga has a temporary reprieve and commodity prices continue to soar.
Still to come this week; Earnings from some major players including Amazon and Apple, Central Bank rate announcements from the BoC, BoJ & ECB, US GDP & PCE data and the usual potential month-end shenanigans.
The number and quality of the US jobs recovery grinds on and remains central to the FED’s tapering timeframe. The weekly US unemployment claims last week registered a new pandemic low at 290,000 and the long-term claims also improved significantly. Claims this week are expected to hold under 300,000.
The vaccine rollouts continue to drive sentiment, and the Delta variant remains a significant concern. Asian lockdowns continue to ease as Melbourne ended its record 263-day restrictions. But spikes in rates in Eastern Europe continue to weigh as the vaccination rate starts to stall. However, as booster jabs roll out in high-income countries, low-income country vaccination rates remain below 5%.
The USDIndex found support at 93.50 this week and was capped at 94.00, significantly below the one-year highs of last week. EURUSD could not close over 1.1650 and struggles at 1.1600 ahead of the ECB on Thursday. Likewise, USDJPY cooled from 4-year highs at 114.70 and tested 113.50 ahead of the BoJ also on Thursday. Cable held its bid (topping at 1.3830 again) ahead of Wednesday’s budget but under 1.3750 as anticipation of a rate hike from the BoE before year end cools.
The major US stock markets posted new all-time highs as the third quarter earnings season continued its strong start. 81% of the companies in the S&P500 that have reported have exceeded Wall Street estimates. #TESLA rallied over 12% on Tuesday alone and joined the exclusive group of companies whose market capitalization exceeds $1 trillion.
Gold had a particularly volatile week. As the USD cooled, found support, and then rose, yields gyrated, and inflation data continued to move higher. This week from lows at $1766 the price spiked to $1813 before slipping back under the psychological $1800 and finding support at $1780 and the 50-day moving average.
USOil prices continued to soar, printing new 7-year highs as demand outstrips supply, inventories continue to be drawn down and OPEC keeps production in check. This week the price peaked at $83.70 (again) before declining to $82.00 per barrel.
The yield on the US 10-Year Treasury Note remains very much in focus and a key market mover. A significant rally to 1.68% before slipping to 1.62% keeps rates elevated in the short-term. With a more hawkish FED, rising inflation, and markets pricing in a taper of $15bn per month from next week’s meeting, the focus has now turned to actual rate hikes moving closer than Q4 2022.
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Stuart Cowell
Head Market Analyst
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