STATE OF THE MARKETS

Dollar climbed as yields rose. US stocks were dumped on Thursday as investors’ flight to safety increased with the rising yields. Nasdaq (-1.43%) fell the most, followed by S&P (-1.13%), Russell (-0.72%) and Dow (-0.56%) as yields continue to climb higher amid sell-off in bonds, benefitting the Dollar. As at writing, the short term 1Y has reached 4% while the 5Y at 3.66% and 3.45% for the 10Y benchmark. Dollar climbed back to the 110 handle.

In the commodity markets, Dollar strength has pulled major commodities lower, with crude falling back to $84.55/bl and gold struggling to find bids at $1,664.05/oz. Elsewhere, iron ore stalled at $100.40/tn waiting for the next catalysts ahead of the FOMC meeting next week.

In the FX space, flight to safety was evident with King Dollar leading the demand in the long term, while Swiss in the medium term and Yen in the short term. Aussie, Kiwi and Loonie were sold off across all horizons, except for Loonie in the long term accounts. Euro remained in the demand territories, while Sterling in the offers, as investors expect more hawks to come out of ECB.

On Friday, markets expect more profit taking as the earnings calendar comes thin with only consumer sentiment to be watched ahead of the FOMC meeting next week.

OUR PICK – No New Picks

No new picks going into the weekend. FedWatch is now pricing 78% probability of a 50 – 75 bps hike next week with 22% chance for a 75 to a full 1% hike despite some calls from Wall Street for a 25 – 50 bps hike to prevent a recession. With VIX trading at 28 and in an ascending triangle pattern, we believe the drop in equities is not over yet. Higher flight to safety this week as we saw $3.4 billion flows into taxable bond funds, outflows of $15.3 billion from the money market and $4.5 billion out of equities.

Trades updates: 

Equities:  T (8% undervalued, 6.62% yields), M (47% undervalued, 3.78% yields), AUY (23% undervalued, 2.78% yields), CRON (24% undervalued with 27.82 z-score), WBA (36% undervalued, 5.61% yields) and VIPS (36% undervalued with 4.73 z-score) all pulled back in the recent stock rout, giving investors a better entry point for dividend yielding stocks.

FX & Commodities:  NZD/CHF reached long term TP2, XAU/USD , EUR/AUD and Crude Oil were stopped out.

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