Introduction:
Today, we are excited to introduce our weekly market update series, providing a highlevel
overview of the week's market performance while shedding light on noteworthy
events and emerging trends.
Key Developments of the Week
Monetary Policy:
Loretta Mester has suggested that one more rate hike may be necessary within the year before the Federal Reserve adopts a more static stance for some time.
Bonds:
Yields have surged once more, with the 30-year yield approaching 5%, a level not
seen since 2007. Traders are bracing themselves for the 10-year yield to follow suit in
the coming weeks. The losses in the bond market are beginning to parallel some of the
most infamous market downturns in US history. In fact, the decline in yields for bonds
maturing in 10 years or more is nearly on par with the aftermath of the dot-com bust.
Source: Bloomberg
According to JPMorgan's bond manager, William Eigen, benchmark Treasury yields
might surge to 6% - Bloomberg reports. He has chosen to maintain a significant
portion of his $8.8 billion Strategic Income Opportunities Fund in cash as a precaution.
Meanwhile, Barclays has indicated that global bonds are on a downward trajectory
unless a sustained dip in stock markets rekindles their appeal.
Corporate Bond Sales in Europe:
Despite raising cost of borrowing recent figures reveal that new corporate bond sales in
Europe reached approximately €43 billion last month, underscoring businesses'
acceptance of higher interest rates as a lasting reality. The prevailing sentiment seems
to be that there's no advantage in delaying entry into the market.
Stocks: Mixed Signals Amid Recession Risks and Positive Data
This week's market landscape has been marked by a blend of conflicting signals as
investors grapple with the prospect of a recession and the backdrop of encouraging
economic data.
Uncharacteristically, bonds and stocks have both experienced declines this week, a
deviation from their typical negative correlation. However, in the last few days of trading, the
S&P 500 and Nasdaq Composite indices have gained 0.5% and 1.8%, respectively.
Nevertheless, amidst this market turbulence, robust unemployment rate figures and much larger than expected nonfarm payrolls data released this week underscore the resilience of the US economy.
Source: Bloomberg
Adding a layer of concern - the US stock risk premium could dissipate soon — a
situation in which S&P earning yield gets close to treasuries - a phenomenon not
witnessed since 2002. This development highlights the potential vulnerability of equities
sentiment in the near term.
Commodities:
Crude oil prices rallied earlier in the week. However, prices subsequently dropped to
mid-80s, likely driven by China's slower-than-expected recovery and growing concerns
about a potential recession. This downward pressure has led OPEC+ to contemplate
maintaining its output reduction plans. Russia has confirmed its commitment to a
300,000 barrel-a-day cut this month, and Saudi Arabia is also likely to continue its cut
in response to these market conditions.
Further exerting downward pressure on oil prices is the impending increase in supply.
Turkey has announced that a crucial pipeline, capable of delivering up to 500,000
barrels of oil per day from northern Iraq. Citi's forecast anticipates a drop in Brent
crude prices to the low $70s per barrel in the upcoming year - Bloomberg reports.
Meanwhile, copper has declined for a fourth consecutive day, while wheat prices have
remained relatively stable in the market.
Corporate news:
The Wall Street Journal reported that Bill Ackman expressed interest in pursuing a deal
with X, owned by Elon Musk. Pershing Square received regulatory approval for a new
investment vehicle called a SPARC, which targets private companies seeking to raise
$1.5 billion or more and potentially take them public.
WeWork missed interest payments due on five of its bond, initiating a 30-day grace
period before a potential default. The company asserts it possesses adequate liquidity
to meet the payments and may opt to do so during this grace period.
BYD is on the pass of surpassing Tesla as the world's leading seller of electric vehicles
(EVs), having sold just 3,456 fewer cars than its American counterpart in the last
quarter.
Brookfield raised $12 billion for its largest ever PE fund.
Politics:
The United States narrowly managed to avert a government shutdown, a move that
likely cost Kevin McCarthy his position as House Speaker. With political uncertainty
increasing the risk of a U.S. ratings downgrade, strategists have noted that the next
speaker will probably face even more pressure than McCarthy did on funding issues.
The House is expected to hold elections on October 11th, with Patrick McHenry
currently serving as the acting speaker.
What to Expect Next Week:
Earnings season is starting, with companies like Citi, BlackRock, Walgreens,
PepsiCo, and Domino's releasing their earnings reports, among others. We will publish
an update next week covering the results.