Fed is under pressure after the strong job reports, increasing the instability of both stock and bond markets. The risk of heading to an even higher policy rate next year has been solidified after the employment report was rolled out. The expectation of a 50bps hike in mid-Dec remains. Stock lost its earlier gains this week while yield remained higher. China stocks jumped, driven by the hope of expedition of the reopening process. The PMI data in Japan is signalling a contraction.
NFP: The Nonfarm Payroll employment result is higher than expected. Inflation pressure remains as the report shows that average hourly earnings increased to 5.1% YoY. Investors were positive in equity due to the comments from the Fed about the slower pace of hikes, while the gains evaporated as the job report suggested otherwise.
China: There is a rumor about China considering the reopening amid large-scale protests. Although the officials did not actually announce that, they did announce the steps such as the vaccination campaign for the elderly. Analysts are interpreting it as preparation to end the zero-COVID policy, providing optimism for the China stock markets.
Oil Cap: EU agrees on a $60/barrel price cap on Russian oil in order to control Russia’s revenue while not increasing the price and disrupting the global supply. The OPEC+ meeting will be held on Sunday (today). Markets are speculating on a further production cut as they are out of spare capacity, and they have to rebuild spare capacity to get ready for the China reopening.
*Data as of market close. 5-day change ending on Friday.
VIEW FROM THE STREET
Standard Chartered: Historically, the last quarter is the best-performed quarter for equity. Global equity has rebounded by 15% from the start of this quarter, mainly driven by the expectation on rate peak and China reopen.
Bank of America: Dividend should be a more significant factor for investment decision. First, dividend ratio for the S&P500 is below the long term average by 13%. Second, the demographics change of more people turned into 65 will increase the demand for income-producing investments, which dividend paying stocks may start to increase market share.
Julius Baer: The focus will be on the interest rate decisions of large central banks (e.g. Fed, ECB, BoE and SNB) in two weeks. It will be a surprise if there is any softer guidance on rates. For the days ahead, it will be supportive of locking in good quality bond yields.
Standard Chartered: Corporate bond market began to price in recession risk. Some portions of the yield curve are inverting as more investors are adding long maturity bonds to lock in yields.
J.P. Morgan: By looking at the Gross Domestic Product (GDP), there are weaknesses across various sectors. Although high rates will weigh on investments, inventories and exports, there will be support from consumption in near term, which accounts for 68% of GDP. Consumer spending is expected to grow gradually driven by government spending (e.g. student loan moratorium) and tight labor market.
Goldman Sachs: Market participants are eyeing on two things - growth and inflation. Inflation is taming, supporting by the core Personal Consumption Expenditures (PCE) dropped to 0.22% MoM. Meanwhile, growth is slowing down as the Purchasing Managers Index dropped more than expected, showing a contraction in output.
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