The Market Week – November – Week 3

The Market Week – November – Week 3

It’s all about inflation!!

Inflation pressures are broadening and deepening especially in the US, UK and Canada, and along with strong labour market data, are adding further pressure on the FOMC, BoE and BoC to introduce rate hikes soon, especially as the last two are already on the road for it with the BoE to deliver the long flagged rate hike at the December meeting.

US Treasury Yields restored their safe haven allures, with the 30-yr at 2% and 10-yr at 1.66% this week. Yields keep rising on the increasing worries over inflation and a possible hawkish response from Central banks. In contrast, Bund futures are lower, due to the ECB’s extremely dovish policy stance, although the message in December could well be less dovish than markets are currently expecting.

The USDIndex holds at its 16-month high, i.e. 96.25, while the solid economic data, the strong USD, the uptick in yields and the largely risk-on backdrop has boosted USDJPY to 4-year high territory, a breath away from 115.00 level. EURUSD has slipped below 1.1300, while Cable steadied within the 1.3400 area as the market is giving better odds of a December hike which could limit GBP losses.

China’s developers remain in focus with the media reporting that Evergrande’s online sales platform has closed some units and that authorities will ease restrictions on funding of developers. That, alongside the worries about COVID-19 and higher costs, is keeping Asian indexes broadly in the red. JPN225 at 29,702.

Oppositely, the US stock markets found solid support from the flight out of bonds and into risk, especially as strong earnings news boosts investor sentiment. All three indices remain well above their 20-day moving averages, sustaining the month’s gains. Technology stocks are weighed down, while the consumer discretionary sector is leading the way so far, with #HomeDepot +6% in a day.

Gold dipped to $1849 from June 16 highs at $1877 amid the strong USD and rising yields. However, it is currently gaining ground as lingering fears over inflation keep supporting prices. Higher interest rates could limit Gold’s upside potential.

USOil drifted lower to $78.75 per barrel, from $83.28 highs last week, as US gasoline stocks presented a decline more than expected last week, potentially heightening pressure on the Biden administration to release oil from emergency reserves to cap soaring fuel prices.

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Andria Pichidi

Market Analyst

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