Fed not fully convinced rates are sufficiently high

On Thursday, US markets experienced a decline, breaking an eight-day winning streak for the S&P 500 and a nine-day run for the Nasdaq. The drop was attributed to softer demand at a 30-year Treasury bond auction, leading to a spike in long-term yields. Federal Reserve Chair Jerome Powell’s hawkish comments on the need for sustained policy rates and a potential further tightening contributed to the negative sentiment. Despite strong earnings from Disney the Dow fell 200 points, with small-cap equities underperforming for the second consecutive day. The 10-year US Treasury yield rose to over 4.6% and the S&P 500 and Nasdaq lost 0.8% and 0.9%, respectively. In contrast, European markets ended higher yesterday, with the German Dax and the Euro Stoxx 50 index rising by 0.8% and 1.2%, respectively, driven by positive earnings reports from the likes of Deutsche Telekom, Adyen, and ArcelorMittal. 

Summary for 10.11.2023 

• Asian equity markets experienced declines on Friday, influenced by the negative impact of rising Treasury yields and hawkish statements from Federal Reserve Chair Jerome Powell. Weak earnings from major tech players like Softbank and SMIC, coupled with disappointing economic data from China, further contributed to the bearish sentiment, resulting in notable losses across indices in Hong Kong, Japan, South Korea, and mainland China. 
• Global markets anticipate a negative open on Friday due to Federal Reserve Chair Jerome Powell’s hawkish comments, leading to concerns about a potential rate hike and a rise in Treasury yields. 
• Oil prices stabilised on Friday but were still poised for a third consecutive week of declines. Easing concerns over potential supply disruptions in the Middle East, particularly from the Israel-Hamas conflict, have allowed demand worries, notably from China, and uncertainties in the US to take centre stage in the market. 
• Federal Reserve Chair Jerome Powell’s speech on Thursday, while not significantly deviating from the recent Fed stance on inflation, triggered a market reaction, causing some investors to reassess their expectations. Powell emphasised the Fed’s cautious approach, stating that progress toward the 2% inflation goal is not guaranteed, and decisions on policy adjustments will be made meeting by meeting. The market is currently pricing in an 85% probability that the Fed won’t hike rate again. 
• Israel’s military has implemented pauses in the conflict to allow more than 50,000 Palestinians in north Gaza to escape to the south, while the White House announced daily four-hour pauses.  
• The Reserve Bank of Australia anticipates that inflation will return to the upper end of its 2-3% target range by the end of 2025, as cost pressures ease more gradually than previously expected. Following a 25-basis-point increase in cash rates during its November meeting, the board emphasised the economy’s resilience, fuelled by strong government spending on infrastructure and robust migration, leading to an upward revision in GDP growth projections for Q4 2023 and beyond. 
• Over the course of last week, the number of Americans filing for unemployment benefits was 217,000, slightly lower than the previous week but close to 7-week highs from late October, aligning with market expectations. Continuing claims rose by 22,000 to 1,834,000, the highest since April, indicating increased challenges for the unemployed in finding new employment, in line with the Fed’s signals of softening conditions in the US labour market. 
• Industrial & Commercial Bank of China (ICBC) is suspected of being hacked by the Lockbit cybercriminal gang with ties to Russia which has targeted major entities like Boeing, ION Trading UK, and the UK’s Royal Mail in the past year. ICBC had to resort to sending required settlement details on a USB stick via a messenger to limit the damage caused by the suspected cyberattack.  
• Becton Dickinson reported Q4 EPS in line with consensus yesterday at $3.42 and slightly exceeded revenue expectations at $5.1 billion. However, its 2024 guidance of EPS between $12.70 and $13.00, below the consensus of $13.52, and a revenue outlook of $20.3 billion, missing the analysts’ estimate of $20.36 billion, led to a 9.3% decline in its shares. 
• Adyen shares surged 38% on Thursday as analysts praised the digital payment firm’s more realistic medium-term guidance, easing concerns about the sector facing investor caution. Adyen’s third-quarter growth, reporting a better-than-expected 22% year-on-year increase in sales, contributed to a positive market response. 
• Schneider Electric shares rallied on Thursday, rising by over 8% after the French energy and automation group disclosed its medium-term financial targets. The company’s announcement of targeting annual organic revenue growth of 7% to 10% through 2027 and an expansion of its annual organic adjusted EBITA margin contributed to the positive market response.