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My view on what's going on in the financial markets and the global economy, and a few other things that might interest me from time to time.

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Week ended Nov 3, 2023: stocks and bonds rally hard


With yields taking a breather and the Fed doing just as expected, bonds and stocks re-discovered their mojo after a difficult few months. How bad had it been before this week? The S&P 500 (along with most other global equity indices) has been down every month since August. For bond investors, the second half has been even worse. In fact, total returns have been negative since May on intermediate and longer-dated US Treasuries. So you can imagine the relief for investors – after declaring victory this summer based on stellar first half 2023 returns (following a dismal 2022) and then getting hammered again – who are once again crawling out of their caves to pile into risk assets. Even a poor outlook from the world’s largest market cap company Apple on Thursday after the close couldn’t slow the rally, with Friday’s continuing gains almost surely fuelled by short covering, most visible in small cap and high beta stocks.


The major catalysts contributing to the week’s euphoria included:

  • A trifecta of central banks (the Fed, the Bank of England and the Bank of Japan) doing nothing, leaving overnight bank rates and overall monetary policy unchanged,

  • A US Treasury funding schedule announced Wednesday that was slightly more skewed towards issues at the shorter-end of the curve, relieving supply pressure at the intermediate and long end of the curve,

  • Earnings which remain generally supportive,

  • Resolution of the UAW strike, which looks to have been sorted (albeit not in favour of the manufacturers as far as employee wage increases),

  • Economic data, which generally although not exclusively suggested that the US economy – and especially the jobs market – might be cooling (noting the bias towards “bad news is good news” for the bond market), and

  • Two wars which continue to drag on but remain contained for now.

The effect of this backdrop, along with generally weaker economic data in most markets, was a sharp decrease in intermediate and long-term government bond yields in the US, UK and Eurozone, as you can see in the table to the right.


Away from traditional asset classes, gold was flat on the week, and both the US Dollar and oil lost ground. Yields and credit spreads were sharply lower this week in corporate bonds, too, especially at the non-investment grade end of the credit spectrum. Again, investors first impression of a slightly worsening US economy is favourable for credit because it suggests lower interest rates, although it is strange to see this driver completely overwhelming concerns about credit deterioration should the economy – and hence business performance – weaken. I suspect the euphoria got overdone this past week, so I would not be surprised to see some profit taking during the week ahead.


You can find more detailed data about the indices and asset prices tracked by EMC in the section "The Tables" below.


WHAT MATTERED IN MARKETS THIS WEEK

US Treasury funding plan: With a US deficit approaching $2 trillion, Fed QT continuing ($60 bln/month of maturing USTs, removing demand from market), foreign governments (apparently) dumping Treasuries and higher funding costs on newly-issued bonds, the intermediate and long end of the US Treasury curve has been under severe pressure. Investors seemed to breathe a sigh of relief mid-week though when the Treasury announced its upcoming funding plans (see “Quarterly Refunding Statement” from the Treasury). In essence, the Treasury is pushing its financing needs more towards the shorter end of the curve, relieving some stress at the longer end. Still, the US has to fund its out-of-control spending in the quarters ahead so any relief might prove to be temporary – time will tell. The next auction will be $112 billion of three-, 10- and 30-year bonds on November 15th. It will be much-watched.


Central bank decisions: The BoJ, BoE and Fed did exactly as was anticipated this week, although the BoJ ever-so-slightly altered its yield curve control (YCC) in anticipation perhaps of a shift towards tighter monetary policy in the near future. Who knows what might be next with the very insular Japanese economy, although I continue to believe that the BoJ will soon buckle under Yen pressure. The Bank of England gave a bleak assessment of the economic outlook for Blighty, even as they continued to highlight inflation – the highest amongst the G7 – as an ongoing risk in a familiar-sounding “higher for longer” narrative. For the life of me I simply cannot understand why Sterling rallies against the US Dollar with a UK economy that will be lucky to flatline as far as economic growth (or worse, complete malaise) in the quarters ahead.


Earnings: Apple beat consensus earnings but was very cautious on the important Christmas quarter with sluggish demand and increasing competition for iPhones in China being the major concern. Apple is not going anywhere anytime soon, and the one thing I like long-term is the company’s increasing percentage of services (as a percent of revenues). 80% of S&P 500 companies have now reported earnings, and the deliverables vis-à-vis analysts’ expectations have been much better than consensus expectations. Two good summaries of earnings during this reporting season are provided by Refinitiv LSEG I/B/E/S (“This Week in Earnings”) and FactSet (“S&P 500 Earnings Season Update”).


US employment report for October: US payrolls report for October came in weaker than expected, with the unemployment rate increasing to a two-year high of 3.9% and the number of new jobs increasing 150,000, well below consensus expectations of 1xxxxx. Moreover, the number of new jobs added in August and September was revised down (in aggregate) by 105,000, suggesting that the US labour market was weaker than expected in those two prior months, too. The report from the BLS, released Friday, is here. The bond market rallied further on this news, which increased conviction that the Fed’s tightening cycle might be over. The equity market rallied, too, cheering the end of higher rates and seemingly ignoring the effects on companies of a slowing U.S. economy, a topic that will be more properly digested at another time and on another day.


Other economic data:

  • In the US, October manufacturing PMI (here) and services PMI (here) were below consensus expectations, with manufacturing still well below the critical 50 level for the twelfth month running. The JOLTS report mid-week (here) was slightly more favourable for the economy, with new job openings more or less flat with August (which showed a sharp decrease from July).

  • Eurozone GDP declined 0.1% QoQ and retail sales fell in Germany. Core inflation was down, heading in the right direction, but the Eurozone – like the UK – looks to be set for a period of wicked stagflation unless something changes quickly.

  • The US economy will eventually slow too, although I suspect the size, breadth and diversity of the world’s largest economy will provide more downside protection. Of course, given the current complicated political situation in Congress, a massive fiscal deficit and it being an election year, this combination could easily result in a proverbial “own goal” which – in the US – can never be completely ruled out.

WHAT MATTERS IN THE WEEK AHEAD

Things to watch:

  • 2023-24 US budget: The interim 2023-24 budget – extended at the last minute in late September – expires on Nov 17th. There will either need to be Congressional approval for a 2023-24 budget by then (unlikely) or another interim extension (more likely) to avoid a potential shutdown.

  • Uncertainty in the Middle East: Direction of and contagion associated with the Israeli-Hamas conflict is ongoing and uncertain, heading in the wrong direction and increasing concerns that the conflict could broaden.

  • Economic data: Next week brings some soft US data like the Loan Officer Survey (Monday) and Consumer Confidence (Friday). There will be a lot of focus on China, too, which releases data on its imports and exports, as well as inflation data. From the Eurozone, we will see PPI and retail sales for September, and Germany will release factory orders and PMI data early in the week. GDP (3Q and Sept), industrial and manufacturing data will be released on Friday in the UK, likely to confirm the weak growth in the country.

  • Earnings: Earnings wise, another 50 companies will release earnings this week. The list appears skewed towards disrupters and emerging tech companies (if that’s the right way to describe many of the tech companies other than the Mag 7). DIS is reporting on Wednesday.

  • US Treasury funding: Next auction is on November 15th, and will involve $115 billion of bonds across three-, 10- and 30-year bonds (see here)

Upcoming central bank meetings:

  • Federal Reserve (FOMC): Dec 12-13

  • Bank of Japan: Dec 18-19

  • Bank of England: Dec 14

  • ECB: Dec 14

THE TABLES

The tables below provide detail across various global and US equity indices, the US Treasury market, corporate bonds and various other asset classes.


Global equities


US equities


US Treasuries


Corporate bonds (credit)



Safe haven and other assets


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