STATE OF THE MARKETS

Stocks surged, yields tumbled as inflation cools. US stocks surged on Thursday after reports of cooling inflation that may prompt the Federal Reserve to pause on its aggressive rate hikes plan. The tech-laden Nasdaq (+7.35%) jumped the most, followed by Russell (+6.11%), S&P (5.54%) and Dow (+3.70%) as flights to safety continued with bonds buying that sent yields lower across the board. The shorter US2Y notes tumbled to 4.33% while the 10Y benchmark dropped to 3.81% as the Dollar index was sold off to as low as the 107.70 mark.

In the commodity markets, Dollar weakness sent major commodities higher with crude oil rebounded back above the $85.50/bl while gold shot back above $1,750/oz as investors bought real assets to hedge against inflation. Elsewhere, iron ore continues its upward trajectory to $88.20/tn as sentiments improved.

In the FX space, King Dollar and Loonie were sold off across the board while safe haven Yen advanced further in the demand territories. Overall sentiments remained mixed as Kiwi continued to reign in the long term demand, while Aussie in the short and medium term.

On Friday, markets expect a more choppy session as traders and investors continue to weigh the election results and Fed’s next move amid a thin calendar that only has earnings reports from Algonquin Power & Utilities (AQN) and the latest consumer sentiment report.

OUR PICK – No New Picks

No new picks going into the weekend. Dollar dropped like a rock amid absence of speculative buying on rising interest rates after inflation reports signaled that the peak most likely is locked in. We see mixed sentiments as surging equities were accompanied by surging bond demand amid flight to safety on top of precious metal buying. Funds flow has not reported any net inflows to equities so far, but we have seen selective buying into quality names in value and growth alike. It seems that smart money is positioning for a year end rally to cash out as much as they can to lock in profits.

Trades updates: 

Equities:  WBA (19% undervalued, 5.20% yields), SQ (about fairly valued with 4.96 z-score), T (9% undervalued, 6.04% yields), CRON (28% undervalued with 23.21 z-score), M (44% undervalued, 3.36% yields),  AUY (20% undervalued, 2.54% yields) and VIPS (41% undervalued with 3.92 z-score) rebounded at the last minutes as markets braced for lower inflation today.

FX & Commodities:  Crude oil reached medium term TP1 and was stopped out, while we remain bearish GBP/CAD.

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Disclaimer:

This article is for general information purpose only. It is not an investment advice or a solicitation to buy or sell any securities. Opinions expressed are of the authors and not necessarily of MFM Securities Limited or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.