Fed’s hiking cycle is nearing an end

US and international equities finished broadly higher Wednesday, supported by a drop in long-term bond yields that accelerated after the Fed hinted that the rise in yields reduced the need to hike.  Also, the Treasury announced that it plans to slow the pace of increase of its quarterly sales of long-term debt, while softer jobs data also helped alleviate some of the pressures in bonds.  The yield on the 10-year Treasury declined to 4.75%, a 15-day low.  Growth-style investments led the gains, while energy lagged, as the morning rise in oil prices faded late in the day.  While October marked the third straight month of losses for major indices, the fundamental conditions have remained relatively stable, and inflation continues to move in the right direction, suggesting that the trend in shares is likely to remain intact as we navigate the last two months of the year, which historically tend to be favourable for equities.  

Summary for 02.11.2023 

• Asian equity markets largely rose on Thursday, driven by a rally in the technology sector and comments from the Federal Reserve hinting at a pause in interest rate hikes, with Hong Kong’s Hang Seng and South Korea’s Kospi leading gains.  However, Chinese shares saw limited gains due to persistent concerns about weak economic data, including a contraction in China’s manufacturing sector and troubles in the housing market. 
• European shares are set to open higher on hopes of a Fed pause, and US futures edge up after the Fed’s recent policy decisions and comments by Chair Jerome Powell.  
• Oil prices rebounded from a one-month low in Asian trading today due to weak US economic data and less hawkish comments from the Federal Reserve, which lowered expectations for further interest rate hikes.  A weaker dollar and reduced rate hike prospects provided relief to oil markets.  However, concerns over demand and previous declines in October still weigh on oil prices. 

• As widely expected, the Federal Reserve maintained interest rates at 5.25%-5.5% yesterday, with minimal changes to its policy statement, reaffirming strong economic activity.  Notably, the statement included a mention of tighter financial conditions that could dampen economic growth, hiring, and inflation.  The recent increase in long-term yields, a stronger dollar, and declining equity prices are somewhat aligning with the Fed’s goals, potentially reducing the need for further rate hikes. 
• The ADP private-payrolls report released yesterday showed US companies added fewer jobs than expected in October (113,000 actual vs. 143,000 estimate), but more than September’s 89,000 gains.  Together with the slower wage growth, the release suggests that demand for workers is starting to wane, and the labour market is gradually cooling.  The ADP report comes ahead of Friday’s government employment report, which is also expected to show a slowdown in job growth from last month’s strong gains.  A still strong but cooler labour market can help solidify expectations that the Fed will not hike again this cycle. 
• Japanese Prime Minister Fumio Kishida has unveiled a significant economic stimulus package to address rising inflation and gain public support.  The package is valued at over $113 billion, including tax cuts and related expenses.  This move is part of Kishida’s efforts to address public concerns about his handling of inflation, which has been growing faster than people’s incomes in recent years. 
• US President Joe Biden suggested that Israel and Hamas should temporarily stop fighting to facilitate the release of hostages in Gaza.  He didn’t fully endorse a complete ceasefire though.  Biden also mentioned that American diplomacy efforts helped open the Rafah border crossing for some refugees to escape the conflict in Gaza. 
• Qualcomm reported better-than-expected Q4 earnings after the market close, with profits of $2.02 per share and revenues of $8.67 billion, surpassing the projected $8.55 billion.  A significant 15% surge in its automotive business prompted the company to adjust its guidance to $2.25-$2.45 per share.  This led to a rally of 3.8% in its shares in after-market trading. 

• PayPal beat Q3 estimates with sales of $7.4 billion, slightly above the expected $7.39 billion.  This strong performance led to a 4% increase in shares in after-hours trading.  The company also forecasted a 4.8% increase in holiday sales and raised its full-year earnings guidance to $4.98 per share. 
• Airbnb’s Q3 earnings report showed significant earnings of $6.63 per share, primarily due to o one-time income tax benefit, along with revenues of $3.40 billion.  However, shares fell by 2.8% in extended trading following lower-than-expected Q4 revenue guidance. 
• Estee Lauder reported a significant cut in its profit outlook Wednesday due to a slow recovery in Asia, particularly in China.  The company lowered its adjusted earnings per share forecast for fiscal 2024 by over 35% and also anticipates almost $80 million in earnings hit from disruptions caused by the Israel-Hamas war.  Shares were down 18.9% during the regular session, hitting a six-year low. 
• CVS Health Corp fell 0.4% yesterday after the pharmacy chain reported higher-than-expected medical benefit costs, overshadowing stronger-than-expected earnings. 
• Ford Motor rose 1.4% Wednesday after Barclays upgraded the automaker’s shares to “overweight” from “equal weight,” citing a historically low valuation and optimism over the 2024 outlook following the recent settlement of the United Auto Workers strike. 

• WeWork Inc. Plunged 46% yesterday after the Wall Street Journal reported that the shares workspace company plans to file for Chapter 11 bankruptcy protection as soon as next week.