On Tuesday (November 14th), the US stock market rose while bond yields plummeted due to an unexpected slowdown in inflation, reinforcing bets that the Fed's aggressive rate hike cycle is now over, with the next step being to cut interest rates next year.
The S&P 500 index rose nearly 2%, the largest increase since April. Tesla led gains in large cap stocks, while Nvidia rose for the 10th consecutive trading day. The stock price of regional banks rose by nearly 6%. The Russell 2000 Small Cap Index rose more than 5%. Goldman Sachs' basket of stocks with the most short positions outperformed the market, indicating that some traders are preparing to cover their bearish bets. The two-year treasury bond bond yield plummeted by more than 20 basis points. The US dollar index fell 1.2%.
Although the rebound on Wall Street may bring risks of further easing of financial conditions and ultimately make the Federal Reserve's work more complex, the bet on next year's' turn around 'has increased. The Federal Reserve's swap rate indicates that the possibility of another rate hike by the Federal Reserve has dropped to almost zero, with the market pricing for a 50 basis point rate cut in July.
Bryce Doty, a fixed income consultant at Sit, said, "The last group of investors who do not believe the Fed has ended may give up. The Fed's next action is more likely to be a rate cut next summer, rather than another rate hike
Morgan Stanley E * Trade analyst Chris Larkin said that although lower than expected data may encourage some investors to start planning interest rate cuts in 2024, the Federal Reserve may continue to oppose this statement.
Chris Larkin pointed out, "They have run a long way and they won't give up just because they are a little closer to the finish line
Chris Zaccarelli, an analyst at Independent Advisor Alliance, said that it remains to be seen whether the economy can emerge from the recession, but as investors begin to accept the view that raising interest rates is no longer possible, the market should continue to rise.
Richard Flynn, an analyst at Credit Suisse Wealth Management in the UK, said that the decline in inflation indicates that monetary policy has been working in the near future, making the prospect of a "soft landing" more likely. He pointed out that this news enhances the possibility of officials "delaying" further interest rate hikes.
Neil Dutta, head of economics at Renaissance Macro Research, said, "Although the US economy is still healthy, the trend of inflation data is towards a soft landing, which is an ideal state for the stock market
Lauren Goodwin, an analyst at New York Life Investments, said that the complete deflationary process means that the Federal Reserve can "temporarily remain silent", which will reduce the risk of "excessive restrictive policies". Nevertheless, she warned investors who have become "overly enthusiastic" because "financial conditions are once again easing, which has made the Federal Reserve vigilant and highly reliant on data
Evercore ISI analyst Krishna Guha stated that the challenge facing the Federal Reserve is for the market to try to jump into the 'end game', risking a greater or earlier easing of financial conditions than the Federal Reserve itself would like to see. Therefore, it is expected that Federal Reserve officials will maintain a very cautious and relatively hawkish tone
Citadel founder Ken Griffin stated that if the Federal Reserve cuts interest rates too quickly, its reputation may be damaged. Cathie Wood, head of ARK Investment Management, said that various industries in the United States have already experienced deflation, which will force the central bank to initiate a significant interest rate reduction cycle.
Federal Reserve officials welcomed the latest data showing a decline in US inflation, while adding that there is still a long way to go to reach the central bank's 2% target.
Brian Rose from UBS Global Wealth Management said, "Our basic situation is still that the Federal Reserve will not raise interest rates further. However, inflation is still too high, the labor market is still too tight, and the Federal Reserve is unable to declare victory and end the rate hike cycle
In Brian Rose's view, unless the data suddenly turns weak, such an announcement may take at least three months. He pointed out that once a rate cut is announced, the market may quickly focus on the timing of the first rate cut, leading to a decrease in bond yields and a weakening of the US dollar.
Due to bets that the Federal Reserve will complete interest rate hikes, the US stock market rose in November, with the S&P 500 index rising more than 7% during this period and expected to record its best month since October 2022.
According to data compiled by Bloomberg, over the past 22 years, when the S&P 500 index rose by 5% or more in mid November, it remained positive for the rest of the year. Looking back 50 years ago, this setting was positive in 26 out of 30 cases, with 4 exceptions showing a decrease of 1% or less.
At the same time, the latest fund manager survey data from Bank of America shows that investors' optimism for bonds has reached its highest level since the global financial crisis due to their "firm belief" that interest rates will fall in 2024.
Pimco's managers Erin Browne, Geraldine Sundstrom, and Emmanuel Sharef stated in a report that they predict 2024 to be the "golden age" for the asset class. Pimco's view that the bond market may perform well in 2024 is that bonds currently have a higher attractiveness compared to stocks.
Wednesday trading day focus and wind vane:
① 10:00 China's annual rate of total retail sales of consumer goods in October, and China's annual rate of industrial added value above designated size in October
② 14:30 France's third quarter ILO unemployment rate
③ 15:00 UK October CPI Monthly Rate, UK October Retail Price Index Monthly Rate
④ 15:45 French October CPI Monthly Rate
⑤ 18:00 Eurozone September Quarterly Adjusted Trade Account, Eurozone September Industrial Output Monthly Rate
⑥ 21:30 Canada September wholesale sales monthly rate, US October retail sales monthly rate, US October PPI annual and monthly rate, US November New York Fed manufacturing index
⑦ 23:00 US September Commercial Inventory Monthly Rate
⑧ 23:30 EIA crude oil inventory for the week from the United States to November 10, Cushing crude oil inventory for the week from the United States to November 10, and Strategic Petroleum Reserve inventory for the week from the United States to November 10
Analysis of Major Currency Trends:
EUR: EUR/USD up, closing at 1.06928, up 1.68%. Technically, the initial resistance to the upward trend of the exchange rate is at 1.0706, the further resistance is at 1.0748, and the key resistance is at 1.0771; The initial support for the downward trend of the exchange rate is at 1.0641, further support is at 1.0618, and more critical support is at 1.0576.
GBP: GBP/USD up, closing at 1.2498, up 1.79%. Technically, the initial resistance to the upward trend of the exchange rate is at 1.2282, the further resistance is at 1.2343, and the key resistance is at 1.2378; The initial support for the downward trend of the exchange rate is at 1.2187, further support is at 1.2152, and more critical support is at 1.2091.
JPY: USD/JPY fell, closing at 150.375, a decrease of 0.89%. Technically, the initial resistance to the upward trend of the exchange rate is at 151.536, the further resistance is at 151.773, and the key resistance is at 152.158; The initial support for the downward trend of the exchange rate is at 150.914, further support is at 150.529, and more critical support is at 150.292.
