Stocks Fall, US Futures Wobble on Economic Jitters: Markets Wrap

Stocks Fall, US Futures Wobble on Economic Jitters: Markets Wrap

Stocks kicked off the week with big gains after suffering their worst September in two decades as Treasury yields halted a seemingly endless surge, with weak US manufacturing data soothing concern the Federal Reserve will overtighten monetary policy.

Author of the article:

Bloomberg News

Bloomberg News

Rita Nazareth

A commuter walks past a Hokuso-Railway Co. train at the platform of Chiba Newtown Chuo station in Inzai, Chiba Prefecture, Japan, on Monday, March 8, 2020. Japanese Prime Minister Yoshihide Suga extended by two weeks a virus state of emergency for the Tokyo region that has expired on Sunday, trying to maintain a declining trend in infections as the country looks to host the Olympics in about four months.
A commuter walks past a Hokuso-Railway Co. train at the platform of Chiba Newtown Chuo station in Inzai, Chiba Prefecture, Japan, on Monday, March 8, 2020. Japanese Prime Minister Yoshihide Suga extended by two weeks a virus state of emergency for the Tokyo region that has expired on Sunday, trying to maintain a declining trend in infections as the country looks to host the Olympics in about four months. Photo by Noriko Hayashi /Bloomberg

(Bloomberg) — Stocks kicked off the week with big gains after suffering their worst September in two decades as Treasury yields halted a seemingly endless surge, with weak US manufacturing data soothing concern the Federal Reserve will overtighten monetary policy.

Advertisement 2

As a sign of exhaustion that followed the recent washout, about 97% of the S&P 500’s shares flashed green, with the gauge having its best day since July. Aside from being oversold from a technical perspective, extreme pessimism and low fund positioning also fueled a rebound that followed its third-worst performance during the first nine months of a year since 1931.

Financial Post Top Stories

Sign up to receive the daily top stories from the Financial Post, a division of Postmedia Network Inc.

By clicking on the sign up button you consent to receive the above newsletter from Postmedia Network Inc. You may unsubscribe any time by clicking on the unsubscribe link at the bottom of our emails. Postmedia Network Inc. | 365 Bloor Street East, Toronto, Ontario, M4W 3L4 | 416-383-2300

In a bad-news-is-good-news world as far as Fed policy goes, a drop in the Institute for Supply Management’s gauge of factory activity suggested the economy may be faltering, reducing the urgency for more aggressive rate hikes. Fed Bank of New York President John Williams said the central bank still has more work to do to curb inflation, warning the process will take time.

Advertisement 3

Equities also managed to gain even in the face of Credit Suisse Group AG’s market turmoil and Tesla Inc.’s disappointing deliveries that prompted an 8.6% plunge in the electric-vehicle giant’s shares.

“The market is oversold, and sentiment is extremely negative, so a bounce…even a sharp one…could happen at any time,” wrote Matt Maley, chief market strategist at Miller Tabak Co. “However, we see lower-lows before the ultimate bottom is reached for this bear market…as the stock market has not fully priced-in a recession.”

Read: BofA’s Subramanian Says Wall Street Hasn’t Fully Capitulated Yet

As equities snapped back, the Cboe Volatility Index dropped to around 30 after also closing above that threshold every day last week. Nicholas Colas at DataTrek Research said Friday he’d like to see the gauge finishing over that mark for several more days before believing on a “tradeable low.”

Advertisement 4

Key technicals will likely need to capitulate before the S&P 500 can truly bottom, according to Bank of America Corp.’s Stephen Suttmeier. Although the US equity market typically turns bullish in the fourth quarter of midterm election years, capitulation remains elusive in equity put-call ratios and S&P 500 selling volume.

JPMorgan Chase & Co.’s Marko Kolanovic reiterated that increasingly hawkish central banks and the destruction of the Nord Stream pipelines will likely cause delays in the US equity-market’s recovery, putting the firm’s year-end target for the S&P 500 — which implies a potential upside of about 30% from Monday’s close — at risk.

Treasuries surged across the curve, with the five-year yield at one point plummeting over 30 basis points. The 10-year rate sank to 3.65% after recently topping 4% and climbing for nine straight weeks. Swaps tied to Fed policy meeting dates fell sharply for early 2023. The March meeting contract’s rate currently suggests a peak policy rate of 4.46% next year, down from recent highs above 4.60%.

Advertisement 5

The dollar slipped, yet the latest MLIV Pulse survey showed the greenback is expected to hit new highs over the next month. Gold surged. US coal prices surged past $200 for the first time as a global energy crunch drives up demand for the dirtiest fossil fuel. Oil saw its biggest rally since July as potential OPEC output cuts heighten fears of supply tightness on the horizon.

Read: Credit Wipeout Foretells More Junk-Debt Pain as Recession Looms

Despite the rebound in risk assets, markets are bracing for more turbulence as a crucial reading on the still-tight US labor market is set to give traders a chance to reassess the Fed’s commitment to its aggressive path of rate hikes.

The Fed should consider stopping its tightening campaign after one more rate hike in November, according to Ed Yardeni, who coined terms like “Fed Model” and “bond vigilantes.” The stress in financial markets from big rate increases, a surging dollar and quantitative tightening has reached the point that officials should make financial stability the top priority, he added.

Advertisement 6

“Investors are starting to doubt central banks globally will remain aggressive with fighting inflation as financial stability risks are growing,” said Ed Moya, senior market analyst at Oanda. “It is too early to call for a Fed pivot, but it seems the action in Treasury markets suggests traders are growing confident that the global growth slowdown is starting to drag down pricing pressures.”

Elsewhere, Brazilian assets soared after President Jair Bolsonaro secured his way to a runoff election against Luiz Inacio Lula da Silva as investors cheered on the incumbent’s better-than-expected showing and bet his leftist challenger will be forced to moderate his stances in the second stretch of the race. 

The real was the best-performing among the world’s major currencies Monday, while the Ibovespa gauge of stocks climbed 5.5% — its biggest gain since April 2020.

Advertisement 7

After two consecutive months of declines, Bitcoin advocates are hoping that the largest cryptocurrency reverts to form in October, which has typically been one of its best months for gains. The virtual currency tends to rise roughly 25% in October and has, since 2015, advanced more than 85% of the time during it, according to Bespoke Investment Group.

Read: Wall Street Watchdogs Seek More Muscle to Police Bitcoin Trades

Key events this week:

  • Eurozone PPI, Tuesday
  • US factory orders, durable goods, Tuesday
  • Fed’s John Williams, Lorie Logan, Loretta Mester, Mary Daly speak at events, Tuesday
  • Eurozone services PMIs, Wednesday
  • OPEC meeting begins, Wednesday
  • Fed’s Raphael Bostic speaks, Wednesday
  • Eurozone retail sales, Thursday
  • US initial jobless claims, Thursday
  • Fed’s Charles Evans, Lisa Cook, Loretta Mester speak at events, Thursday
  • US unemployment, wholesale inventories, nonfarm payrolls, Friday
  • BOE Deputy Governor Dave Ramsden speaks at event, Friday
  • Fed’s John Williams speaks at event, Friday

Advertisement 8

Some of the main moves in markets:

Stocks

  • The S&P 500 rose 2.6% as of 4 p.m. New York time
  • The Nasdaq 100 rose 2.4%
  • The Dow Jones Industrial Average rose 2.7%
  • The MSCI World index rose 2%

Currencies

  • The Bloomberg Dollar Spot Index fell 0.5%
  • The euro rose 0.3% to $0.9828
  • The British pound rose 1.4% to $1.1325
  • The Japanese yen was little changed at 144.67 per dollar

Cryptocurrencies

  • Bitcoin rose 1.7% to $19,556.6
  • Ether rose 1.2% to $1,319.21

Bonds

  • The yield on 10-year Treasuries declined 17 basis points to 3.65%
  • Germany’s 10-year yield declined 19 basis points to 1.92%
  • Britain’s 10-year yield declined 13 basis points to 3.96%

Commodities

  • West Texas Intermediate crude rose 4.7% to $83.26 a barrel
  • Gold futures rose 2.2% to $1,709.20 an ounce

View Original Article

Free weekly Newsletter

A weekly breakdown of forecasts and trends

Enter your contact info to get The Financial Gambits VIP Newsletter for FREE.

We hate spam as much as you, if you dont like it just unsubscribe and we will never bother you again 

FREE DOWNLOAD

Learn how the spacial web will change the course of our lives and how to identify companies that show the most promise.