The Stock Market Analysis – October-10-2023


Market News – As we see US yields increase, which has led to a change in perspective among several members of the Federal Reserve, traders are speculating that the Fed’s actions may be coming to a halt. However, with numerous Fed speakers scheduled to address the public this week, it might be wise for investors to wait and see if this is the new narrative from the Fed before hopping onto the Eldorado bandwagon for stocks.

To complete this beneficial cycle for stocks, it would be ideal if yields in the middle of the curve were to decrease further. This, coupled with an upgrade in earnings expectations, could potentially drive stocks beyond their current trading range. For systematic investors, the relatively stable VIX suggests a high likelihood of a low-volatility regime. This is characterized by decreasing macroeconomic uncertainty as we near the end of the Fed’s hiking cycle.

The unfortunate reality of war is that unless it directly impacts their region or their global GDP, neither investors nor central banks tend to pay much attention. This was evident in the recent events in the Middle East. Apart from Bank of Israel’s foreign exchange intervention, there was no policy response from either the Federal Reserve or the European Central Bank.

As the Israel Defense Forces continue to extinguish remaining threats, geopolitical risk is decreasing. Consequently, cross-asset and oil traders are gradually letting go of their WTI and Brent long positions. This is in anticipation of this week’s inventory reports, which are expected to be closely watched.

US yields increase Effecting Oil

The Stock Market Analysis - October-10-2023

US Index – Daily Chart

Oil traders often use a four-week average to balance out weekly demand fluctuations and gain a more thorough understanding of the physical market’s condition. However, even when looking at these four-week figures, it’s clear that gasoline consumption remains significantly weaker than pre-pandemic levels. There has been a 10% decrease from 2019 and a 5% decline compared to last year.

US yields increase

US Index Weekly Chart

Following a significant dollar rally, foreign exchange markets are adopting a wait-and-see approach. They are keen to see if Asia’s policy anchors by the Bank of Japan and People’s Bank of China will continue to limit any drastic Dollar movements.

  • 10 October 2023
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