STATE OF THE MARKETS

Stocks dropped, yields jumped amid hawkish Feds. US stocks dropped on Thursday after comments from Fed’s Bullard that the benchmark rate may have to be raised to 7% before any easing should be in the picture. The hawkish comments gapped down major averages with Russell (-0.76%) fell the most, followed by Nasdaq (-0.35%), S&P (-0.31%) and Dow (-0.02%) as yields jumped higher across the board. The shorter 2Y notes jumped back above 4.46% while the 10Y benchmark back above 3.77% as the Dollar index received firmed bids above the 106.50 minor handle.

In the commodity markets, crude oil dropped below $81.20/bl as demand concerns continue to intensify amid stronger bids for Dollar. Similarly, gold dropped below $1,755/oz before support came in to float the precious metal above $1,760/oz. Elsewhere, iron ore however, continues to climb higher past $93/tn as speculators continue to see demand from China Covid re-opening in March 2023.

In the FX space, heavy repositioning ahead of the Thanksgiving week saw Kiwi and Sterling led the demand across board while Dollar and Loonie were offered in the medium and long term accounts. Sentiments remained mixed with Loonie and King Dollar remained on offer in the medium and long term while Aussie and Kiwi on bids.

On Friday, markets expect a cautious session with heavy liquidation as investors prepare for the Thanksgiving week and year end book closing. Earnings to watch include JD.Com (JD), Atcore (ATKR), Foot Locker (FL), Spectrum Brands (SPB), Buckle (BKE) and Twist Bioscience (TWST) as well as the latest figures in existing home sales and leading economic index to gauge the health of US economy.

OUR PICK – No New Picks

No new picks going into the weekend. Markets are now repricing Dollar for a 50 points hike instead of 75 and  recent comments about a 7% terminal rate before any easing is being weighed for any bearings. Probability for a 75 points hike rebounded from 14.6% to 19.4% and markets still see 80.6% of a 50 points hike given latest economic data. The last time rate at 7% was back in November 1990 with less than a trillion in the Fed’s balance sheet. Now at more than $8 trillion, we see 7% is more than likely a wishful thinking as the interest payments would be unbearable for the US economy. 

Trades updates: 

Equities:  WBA (18% undervalued, 4.78% yields), SQ (about fairly valued with 4.96 z-score), T (9% undervalued, 5.86% yields), CRON (28% undervalued with 23.21 z-score) and AUY (14% undervalued, 2.41% yields) pulled back following major averages while M (43% undervalued, 2.78% yields) and VIPS (38% undervalued with 3.92 z-score) continue to climb higher on upbeat earnings and sentiments in China.

FX & Commodities:  GBP/CAD was stopped out and we have re-entered NZD/USD short with new stop at 0.6230

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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.