STATE OF THE MARKETS

Yields sink amid mixed stocks. US stocks closed mixed Thursday after earnings for Meta Platforms (META) and Amazon (AMZN) disappointed investors who flocked to bond safety after a weak holiday forecast amid rising inflation. The blue chip Dow (+0.61%) and small cap Russell (+0.11%) eked minor gains, but S&P (-0.61%) and Nasdaq (-1.63%) closed in the red after Meta and Amazon dropped more than 20%. Demand for bonds sent yields lower across the board with the short term 2Y fell to 4.28% and the 10Y benchmark to 3.93% as the Dollar index rebounded back above the 110.50 minor handle.

In the commodity markets, crude continued to maintain bids and closed higher around $88.10/bl after news of upbeat US GDP that quelled recession fears. As at writing, gold pulled back to $1,650/oz handle on Dollar strength as well as iron ore that continue to fall to the $92.80/tn barrier.

In the FX space, Sterling continues to lead the demand alongside Euro and Kiwi in the medium and long term accounts as King Dollar, Aussie and Swiss continue to be sold off. However, short term traders were seen bidding the Dollar alongside Loonie and Kiwi while offering Euro, Aussie and Swiss.

On Friday, markets expect a more choppy session as traders and investors continue to rebalance their portfolio as the month comes to an end next week. Earnings to watch include Exxon Mobil (XOM), Chevron (CVX), Abbvie (ABBV), Nextera Energy (NEE), Sanofi SA (SNY) and Colgate-Palmolive (CL) as well as the Fed’s favored PCE prices, employment cost index, pending home sales and consumer sentiments to gauge the state of the US economy.

OUR PICK – No New Picks

No new picks going into the weekend. Despite the upbeat US GDP (2.6% vs 2.3%) there was a sudden spike in bond demand on Thursday that forced yields to spike down, notably the 3 month bills that yielded more than the 10Y note. Often touted as one of the reliable indicators of a coming recession, markets see less than a 50% chance of another 75 basis points hike in December as the Feds may have to ease its aggressive plan. We see Dollar weakness in the medium term.

Trades updates: 

Equities:  WBA (19% undervalued, 5.38% yields), SQ (about fairly valued with 4.96 z-score), T (about fairly valued, 6.16% yields), CRON (30% undervalued with 23.21 z-score), M (43% undervalued, 3.01% yields) and AUY (21% undervalued, 2.64% yields) continue its upward trajectory this week while VIPS (43% undervalued with 3.92 z-score) tried to rebound despite the China stock rout.

FX & Commodities:  AUD/CHF reached medium term TP1, EUR/GBP was stopped out and we remain bullish Crude oil.

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