Wait-and-see mindset - Treasury yield curve flattened

• GLOBAL CAPITAL MARKETS OVERVIEW:

The U.S. stock market fell further on Tuesday. The Dow Jones Index fell more than 100 points for the third consecutive trading day, the S&P 500 Index fell 0.2%, and the Nasdaq Index fell 0.1%. Investors were ahead of key economic data and the start of the third-quarter earnings season. Avoid big bets while worrying about slowing growth and rising inflation. The IMF lowered its global growth forecast for 2021, and the U.S. economic growth rate is 6%, which is lower than 7%. In terms of data, US consumer expectations reached a record level in September, and the number of job vacancies in the United States fell more than expected in August. At the same time, according to data from Refinitiv, following a 96.3% increase in the second quarter, the company's earnings are expected to increase by 30% year-on-year. In addition, the minutes of the Federal Open Market Committee meeting and consumer price index data to be released on Wednesday, as well as the retail sales data expected to be released on Friday, will all be closely watched to find more clues about the Fed's next move. European stock markets fell mostly on Tuesday. The Frankfurt DAX fell 0.4% to close at 15,147 points, dragged down by concerns about stagflation and weak economic data. German investor confidence fell for the fifth consecutive month to its lowest level since March 2020, indicating that Europe’s largest economic recovery is losing momentum due to global supply bottlenecks and soaring inflation. In addition, the IMF lowered its global growth forecasts and improved the inflation outlook while urging policymakers to prepare and respond quickly if necessary. In other respects, investors continue to worry about China’s Evergrande Group’s debt crisis after some of its overseas bondholders stated that they had not received interest payments before the deadline on Monday. The FTSE MIB reversed the early decline and closed at 25,990 points on Tuesday, up 0.2%. It partly recovered from yesterday’s 0.5% decline and outperformed its European counterparts because the IMF revised Italy’s 2021 GDP growth forecast from 4.9% to 5.8 %. Continued worries about slowing global economic activity and rising inflation dragged down some of the gains and suppressed the possibility of interest rate hikes. In addition, concerns about Evergrande’s debt crisis have resurfaced, and there are signs that the company has missed the third bond interest payment in three weeks. At the same time, investors pay close attention to the third-quarter earnings season to assess the impact of rising input costs on the company. Prysmian rose 3.6% on the company side, and Saipem rose 2.4%, driven by JPMorgan Chase’s revised price target. CAC 40 index fell 0.3% to close at 6548 points. Soaring energy costs intensified inflation concerns and boosted expectations for recent interest rate hikes following the negative global sentiment. At the same time, China may increase its crackdown on private companies, suppressing market sentiment. Regarding revenue, LVMH, the world's leading luxury retailer, had 44.2 billion euros in the first nine months of 2021, an increase of 46% from the 2020s 30.3 billion euros. Among individual stocks, Safran, STMicroelectronics, and Bouygues saw the biggest declines. The FTSE 100 Index fell slightly by 0.2% to close at 7129 on Tuesday, ending its three consecutive days of upward momentum. The stock fell. At the same time, investors digested the UK employment report, which showed that the labor market continued to recover shortly before the government wage subsidy program ended. The number of employees on the company's books and job vacancies hit a record high, and the unemployment rate further dropped to its lowest level in a year. The S&P/TSX had little change on the first trading day of the week. Negative sentiment caused by inflation concerns and weak financial sector offset the strong performance of the materials sector supported by gold and iron ore, while energy benefited from rising oil prices. . At the same time, the health care sector has recorded marginal losses because recent reports show that employees in the industry are overworked and the number of layoffs is rising. Canadians hope that the recent Thanksgiving party will not increase the number of hospitalizations for COVID-19. The Chinese stock market sold off during a rough trading day. The Shanghai Composite Index fell more than 2% to close at 3547 points, down 1.25%, and the Shenzhen Stock Exchange, constituent stock index, fell 1.62% to close at 14,135 points. Investors have been processed with a large amount of information, starting with President Xi Jinping, investigating the relationship between state-owned banks and other financial institutions and private companies, claiming inappropriate transactions, and adding many industry lists from Beijing. The severe flooding in Shanxi, China's largest coal mining center, has also pressured China's coal mining industry. In China's power crisis, China's coal mining industry has faced tremendous pressure to increase production. At the same time, real estate stocks rose, and the market speculated that the government would ease policies to support the troubled industry. Some investors are betting that the default risk of China's real estate has been priced, providing the industry with attractive risk-reward opportunities. The Nikkei 225 index was almost unchanged at midday in Asia. It fell 1% to 28,230 points on Tuesday, and inflation concerns spread to deflation-prone Japan. Driven by a weaker yen and rising global commodity prices, Japan’s wholesale inflation in September hit an 11-year high, leading to rising import costs and putting pressure on corporate profit margins and consumer prices. Increased costs have put more pressure on manufacturers that have been affected by supply constraints caused by the pandemic and the gloomy outlook for Japan's economic recovery. At the same time, investors are waiting for Japan’s core consumer inflation later this month to assess the resilience of the economic recovery.

 

• REVIEWING ECONOMIC DATA:

Looking at the last economic data:

- US: In September 2021, the United States’ year-on-year inflation expectations rose further to 5.3%, which was the eleventh consecutive month of increase since the beginning of the 2011 survey, setting a new series of highs. Three years ago, inflation expectations also rose from 4.0% to 4.2%. This is the third consecutive month of increase and a new record. In contrast, housing prices in the next year are expected to fall by 0.4 percentage points to 5.5%, which is the fourth consecutive month of decline, mainly driven by respondents in the "Western" and "Northeast" census regions; Natural gas, university education, and food prices have slowed, and expectations for price changes in all commodities in the next year have fallen.

- US: The US NFIB Small Business Optimism Index fell from 100.1 points in August to 99.1 points in September, the lowest in six months. More than 50% of small businesses said they could not fill vacant positions last month, and the number of companies offering higher salaries reached the highest level in 48 years. NFIB chief economist Bill Dunkelberg said: “Small business owners are doing their best to meet customer needs but are unable to hire workers or obtain the supplies and inventory they need. As lawmakers move to discuss tax increases and With additional regulations, the prospects of economic policies are not optimistic for small business owners."

- US: In August 2021, the number of job vacancies in the United States fell from 11.098 million in July to 10.439 million, which was lower than market expectations of 10.925 million. This is the first month that the number of job vacancies has fallen since December 2020. According to reports, medical and social assistance have lost the most (-224000), accommodation and catering services (-178000), and state and local government education (- 124000). Increase in vacancies in the federal government (+22000). Employment opportunities in the Northeast and Midwest have decreased. At the same time, the number of employees fell by 439,000 to 6.322 million, while the total number of departures (including resignations, layoffs, and dismissals) increased by 211,000 to 6.03 million.

- RU: Russia’s trade surplus expanded from US$3.3 billion in the same period last year to US$17.1 billion in August 2021. Exports soared by 85.3% to US$43.2 billion, the third-highest on record, thanks to sales to non-CIS countries (94.4%) and CIS countries (43.2%). At the same time, imports increased by 30.6% to US$26 billion, driven by purchases from non-CIS countries (31.3%) and CIS countries (25%).

- NZ: According to data from the Ministry of Finance, as of the end of June 2021, New Zealand has announced a budget deficit of 4.6 billion New Zealand dollars, which is far lower than the 15.1 billion New Zealand dollars gap predicted in the May budget and the 23.1 billion New Zealand dollar gap in 2020. This is mainly due to the increase of core tax revenue by NZ$12.9 billion over the previous year to reach NZ$98 billion. In addition, due to lower-than-expected unemployment and more substantial economic growth, it was NZ$6.4 billion higher than expected. Core government spending, the government's amount each year, is slightly lower than the previous year, but it is still increasing due to the fiscal response to the new crown epidemic. As a result, core official expenditures were somewhat more than NZ$107 billion. In the year to June 2020, core official expenditures were slightly less than NZ$109, a substantial increase compared to 2019 when core official expenditures were somewhat lower than 7 billion New Zealand dollars. Therefore, the ratio of net debt to GDP is 30.1%, instead of the 34% initially predicted in May. It is expected that there will be a budget surplus in 2026/27.

- EU: In October 2021, the German ZEW Economic Confidence Index dropped by 4.2 points from the previous month to 22.3 points, which is the lowest level since the new crown epidemic hit Europe's largest economy in March 2020 sharp decline in investor morale. The index was also lower than market expectations of 24.0 and further away from the 21-year high of 84.4 touched in May, indicating that due to the continued bottleneck in the supply of raw materials and intermediate products, the prospects for economic development in the next six months have deteriorated sharply. As a result, investors now expect lower profits, especially in export-oriented industries such as automobile manufacturing and chemical/pharmaceuticals. In October, the assessment of the German economic situation also dropped by 10.3 points from expectations to 21.6 points.

- EU: In October 2021, the Eurozone’s ZEW Economic Confidence Index fell to 21 for the fifth consecutive month, the lowest level since March 2020, due to the continued disruption of the global supply chain leading to slower growth. In October, 16.4% of analysts surveyed expected economic activity to deteriorate, 46.2% expected no change, and 37.4% expected an improvement. At the same time, indicators of current economic conditions in the Eurozone fell by 6.6 points to 15.9, while inflation expectations fell slightly by 3 points to 17.1.

- AU: According to data from the Housing Industry Association of Australia (HIA), in September 2021, sales of new homes in Australia increased by 2.3% month-on-month, and consumer confidence increased after the end of the new crown epidemic in some states of the country. HIA economist Tom Devitt said that since the collapse of home builders in March, home sales have remained resilient. Compared with 2018 and 2019, home sales were more robust, and in 2018 and 2019, The year was before the influenza pandemic and the outbreak of the plan. He added that the growth of residential construction will continue until the second half of 2022. Quarterly, new home sales increased by 7.4%.

- UK: The number of people claiming unemployment benefits in the UK fell by 58,600 in August and fell by 51,100 in September 2021. As the economy recovers from the coronavirus attack, this is the seventh consecutive month of decline.

- UK: As the labor market continues to recover, the unemployment rate in the UK further dropped to 4.5% in the three months ending August 2021, the lowest level in a year, in line with market expectations. Nevertheless, the ratio is still 0.5% higher than before the pandemic. The number of unemployed fell by 126,000 to 1.51 million quarterly, and the number of employed persons rose by 235,000 to 32.42 million, which was lower than the market’s consensus growth of 243,000. The report also showed that the number of employees on the company's books increased by 207,000 in September to a record 29.2 million. Job vacancies reached 1.1 million, a record high, with the most significant increase in accommodation and catering service activities.

- UK: For the three months ending in August 2021, the average weekly income (including bonuses) in the UK increased by 7.2% year-on-year to 581 pounds, a slowdown from the 8.3% growth in the previous period but higher than the market forecast of 7%. Wages in the private sector increased by 8.3%, and salaries in the public sector increased by 2.5%. Fixed wages, excluding bonuses, rose by 6%. However, the annual increase in average team member wages is being affected by several temporary factors that exaggerate the overall growth rate: the base effect, in recent months compared to the low base period when income was first affected by the coronavirus pandemic, and the composition The result is that the number and proportion of low-paid employees' work decrease, thereby increasing the average income.

 

• LOOKING AHEAD:

Today, investors will receive:

- USD: CPI m/m, Core CPI m/m, G20 Meetings, 30-y Bond Auction, FOMC Meeting Minutes, and FOMC Member Brainard Speaks.

- EUR: German Final CPI m/m, Industrial Production m/m, and German 30-y Bond Auction.

- GBP: Construction Output m/m, GDP m/m, Goods Trade Balance, Index of Services 3m/3m, Industrial Production m/m, Manufacturing Production m/m, NIESR GDP Estimate, and MPC Member Cunliffe Speaks.

- CNY: Trade Balance, USD-Denominated Trade Balance, M2 Money Supply y/y, and New Loans.

- NZD: FPI m/m and Prelim ANZ Business Confidence.

- AUD: Westpac Consumer Sentiment.

- JPY: Core Machinery Orders m/m, and M2 Money Stock y/y.

 

• KEY EQUITY & BOND MARKET DRIVERS:

- Canadian 10-year government bond yield rises to a 21-month high of 1.683%.

- German 10-year government bond yield rises to a 20-week high of -0.17%.

- US futures were flat on Tuesday, and investors are trying to assess the impact of soaring energy prices on economic growth and inflation while waiting for the start of the earnings season tomorrow. According to data from Refinitiv, following a 96.3% increase in the second quarter, earnings growth is expected to increase by approximately 30% year-on-year. At the same time, the minutes of the Federal Open Market Committee meeting and consumer price index data to be released tomorrow will also become the focus.

- On Tuesday, the benchmark U.S. 10-year Treasury bond yield was about 1.61%, the highest level in four months. People are increasingly worried that soaring commodity prices will affect economic growth and push up inflation. At the same time, traders are waiting for the release of the Federal Open Market Committee meeting minutes and the release of U.S. Consumer Price Index (CPI) data to understand the Fed’s next move further. However, the market is already expected to narrow down from next month gradually. Interest rates will start to rise from the end of 2022.

 

• STOCK MARKET SECTORS:

- High: Consumer Discretionary, Utilities, Real Estate.

- Low: Communication Services, Information Technology, Health Care.

 

• TOP CURRENCY & COMMODITIES MARKET DRIVERS:

- EUR: The euro depreciated to US$1.15 in October, hovering at its lowest level since July 2020. Due to concerns about rising inflationary pressures caused by rising energy prices, it is expected that the Fed will scale down faster than the European Central Bank. Fed policymakers are expected to reduce asset purchases in November and raise interest rates next year, while the European Central Bank is expected to raise interest rates by ten basis points before the end of 2022. However, President Lagarde said she still expects a shortage of supply or rising energy prices. Therefore, it is temporary to ease market concerns about inflation. In terms of economic data, the German ZEW Economic Sentiment Index shows that due to the continued supply bottleneck, the economic development prospects of Europe's largest economy have deteriorated sharply.

- JPY: On Tuesday, the yen exchange rate hit its lowest level in three years, which had fallen sharply the day before. People are increasingly expecting that US interest rates will be ahead of other countries and that soaring energy prices will boost Japan’s demand for US dollars. At the same time, the Bank of Japan is expected to continue its extremely loose monetary policy. Furthermore, the new Prime Minister, Fumio Kishida, stated in the first parliamentary question that he would not seek to change the country’s capital gains tax and dividend tax at this time. Instead, he will give priority to raising wages through tax incentives. According to the latest data, producer prices in Japan rose 6.3% year-on-year in August, the most significant increase since September 2008. In addition, commodity prices have soared for the sixth consecutive month.

- BTC: The crypto bull market continues, with Bitcoin trading volume exceeding $57,000, the highest level since May 12, not far from the all-time high of nearly $65,000. After Gary Gensler, Chairman of the US Securities and Exchange Commission (SEC), stated that the United States will not follow China’s ban on digital tokens, virtual currencies have risen by 30 in October due to concerns about stagflation and slowing economic recovery. %above. Earlier this year, China banned cryptocurrency trading, and El Salvador launched digital currency as legal tender, causing turmoil and turmoil in the entire crypto market.

 

• CHART OF THE DAY:

The U.S. dollar index broke 94.5 points on Tuesday. This is the first breakthrough since September 2020. Investors continue to bet that as the economic recovery continues, the Fed will announce that it will start scaling down next month, albeit at a slower pace. Inflationary pressures are still rising. In September, the consumer expectations survey showed that the median inflation expectations for the next 12 months jumped from 5.2% in August to a record 5.3%; the inflation expectations three years ago also rose from 4% to 4.2%. The bond sell-off also pushed up the U.S. dollar. The most apparent buying activity was against the yen, which climbed to a three-year high against the yen. The minutes of the Federal Open Market Committee (FOMC) meeting and the US Consumer Price Index (CPI) data released on Wednesday will be closely watched to learn more about the Fed’s next move.• U.S. Dollar index (DXY) - D1, Resistance (target zone) around ~ 94.38 & 95.99, Support (consolidation) around ~ 93.77 & 93.39.

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