Weekly Market Roundup | Fed Goes Hard Again
11-08 00:00uSMART

Summary:

In the latest FOMC Meeting held 02nd November, the Federal Reserve raised rates by 75 basis points for the fourth consecutive time. The Fed Funds Rate now sits at 3.75% -4%. Importantly, key takeaways from November’s meeting include:

MACRO MARKETS

1、Fed Goes Hard Again

In the latest FOMC Meeting held 02nd November, the Federal Reserve raised rates by 75 basis points for the fourth consecutive time. The Fed Funds Rate now sits at 3.75% -4%.

Source: Bloomberg

Key Takeaways:

Higher Terminal Rates on the card

Since its September’s forecasts, the committee was said to have revised upwards its assessment of the terminal federal funds rate. Greater clarity will nevertheless be obtained when the Fed releases a new dot plot next month, although expectations are for the median rate to be approaching 5%.

Implied Slowing of Future Rate Hikes

While Fed Chair Jerome Powell made no explicit response to whether a 50-basis points hike was up and coming, he did point out that the process of “frontloading” was in huge part completed and acknowledged the lags in monetary policy. Separately, the Fed’s reference to “financial developments” further indicates its concerns surrounding financial stability.

 

2、Treasury Yield Curve Inversion Unlocks New High

Source: Bloomberg

The inversion of the two and ten-year treasury yield curve has touched a new level. As of 03rd November, two-year yields surpassed the ten-year’s yield by as much as 58.6 basis points. This more than surpassed the 58 basis points last witnessed approximately four decades ago.

A yield curve inversion takes place when shorter-term bonds, which are highly policy-sensitive, generate higher returns than longer-dated bonds. As such, it is not surprising for inversions to take place given that the Fed has been highly adamant about bringing down inflation in the past year alone.

While inversions are perceived negatively by most since history has proved that they precede a recession by twelve to eighteen months, these inversions are likely to stay. Reason being that any bullishness seen in macroeconomic data releases moving forward could potentially lead to increased yields and subsequent inversion occurrences.

 

3、Nonfarm Payrolls Report Provides Mixed Picture  

  • Payrolls climbed 261,000 in October vs Expectations of 205,000 (Beat)
  • Unemployment Rate rose to 3.7% vs Expectations of 3.5% (Miss)

Though subtle, the US labour market is starting to show initial signs of fragility. In its latest release, October’s monthly payroll report surprised on the upside through the addition of 261,000 employees. However, this gain in payrolls has been the smallest since the end of 2020. Importantly, while demand seems to be petering off and hiring practices are slowing, Fed officials remain a considerable distance away from attaining success in bringing down inflationary pressures stemming from the labour market.

 

STOCK MOVEMENT

Stocks making the biggest moves this week:

Uber (UBER)  jumped 12% after the company reported stronger-than-expected earnings alongside an upbeat guidance

Abiomed (ABMD) skyrocketed 50% after announcing its agreement to be acquired by Johnson & Johnson for $16.6 billion

Tupperware Brands (TUP) plunged 41% on poor Q3 results due to soft overall sales force activity and poor demand

Etsy (ETSY) soared 14% having beat revenue expectations while issuing an upbeat Q4 guidance

Atlassian(TEAM)cratered 29% as it reported poor earnings that missed expectations alongside an underwhelming outlook

 

ECONOMIC CALENDAR

1、Economic Events

Date

Events

Previous

Forecast

7 Nov

CN Balance of Trade OCT

$84.74B

$91B

9 Nov

CN Inflation Rate YoY Oct

2.8%

2.6%

10 Nov

US Inflation Rate YoY OCT

8.2%

8.1%

US Core Inflation Rate YoY OCT

6.6%

6.7%

11 Nov

US Michigan Consumer Sentiment Prel NOV

59.9

59.3

 

2、Earnings Calendar / EPS Forecasts

 

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