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Week in Review: 2-6 October 2023

News Summary


This week, manufacturing and services PMIs were released around the world. China's manufacturing PMI holds slightly above 50, in positive territory, but in the US and especially in Europe, namely Germany, there is a continued contraction. Regarding services PMIs, they are closer to neutral, and slightly positive in the US.



Job openings in the US rose in August, relative to the previous month, and US nonfarm payrolls increased by 336K in September 2023, above the August number, and beating market forecasts of 170K.

The unemployment rate in the US was at 3.8% in September of 2023, remaining unchanged from the previous month and slightly above market expectations of 3.7%. Average hourly earnings rose by 0.2% MoM and the labor force participation rate in the United States was unchanged, at 62.8% in September 2023.

 

Regarding the financial markets, for the week, the main stock market indices are mixed, with the S&P500 up 0.5%, the NASDAQ 100 up 1.8%, and the RUSSEL 2000 2.2% in the red. Gold is down by 0.8% and silver lost 2.6%. The barrel of WTI is down 8.8% and is now around 83$/barrel. Bitcoin is unchanged and around ~28000$.

The relative strength of the US dollar is unchanged, and bond yields rised dramatically on the long end. US bond yields now sit at 4.81% for the 10-year and 4.97% for the 30-year. The US bond yield curve remains inverted and is now peaking at 5.59% in 6 months from now.


Sources:

https://tradingeconomics.com/

 

Comment Section

The week was marked by a dramatic increase in the US bond yields, with the 10-year trying to break above 4.9%. On Friday, yields have pushed up again, but without breaking this level. Many are speculating that the bond market is adjusting to an environment of higher inflation and higher rates. On the other hand, the bond market sell-off could have been triggered by the need of liquidity and dollars. As we have seen earlier this year, rising interest rates are not good for banks, which borrow short and lend long, and this environment can contribute to more bank failures and market instability in the next months and in 2024. By the end of the week, the US dollar strength had stabilized and bond yields held, allowing the stock market, namely the big caps, to breathe.

We are standing at an important crossroad. A short term rise in equities is possible, supported by technicals and by loose financial conditions. However, fundamentals are not in line with a bull market in equities. The new medium term trend may have become bearish.

Be safe and diversified, and have a nice week.


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Video: Rare 'Bear Steepening' Of The Yield Curve = PAIN for Stocks & Bonds | Alf Peccatiello

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Video: The Vulture of Wall Street | Billionaire Investor Howard Marks

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